Our update on the Australian ETF market as at January 2016.
- Global share ETFs attracted the lions’ share of new funds & growth – over $3 billion in 2015.
- Vanguard and BetaShares closed the gap on market leaders SPDR and iShares – highlighting that consumers are most focused on ETF pricing and unique product innovation.
- Generally ‘smart beta’ ETFs underperformed the broad market ETFs – including 6 that underperformed by more than 5% over the 12 months.
- UBS and Market Vectors were the only issuers whose Australian ‘smart beta’ ETFs beat the general market. As a result, both were able to grow FUM strongly over the year.
- Magellan attracted over $400m into Australia’s first active exchange traded managed fund (ETMF). K2 have followed the lead set by Magellan by launching their own ETMF.
- Global equity ETFs achieved the best annual returns of all sectors and have performed strongly over 1, 3 and 5 years. 1 year fund flows exhibit a strong correlation with trailing 5 year returns.
Exchange Traded Funds (ETFs) listed in the ASX recorded strong inflows of $6.3 billion in 2015 or 42% growth. All ETF sectors apart from commodities increased their funds under management (FUM) for the year. Investors continued to add the majority of new money into international share ETFs, which outperformed Australian share ETFs for a fifth year. The number of ETFs grew to 138 from 104 a year earlier.
|Sector||Number of products||Total FUM
Dec 2015 ($M)
|Annual change in FUM|
|Global Shares (broad market)||49||8,064||52%|
|Australian Shares (broad market)||15||6,203||38%|
|Australian Shares (strategies)||16||2,091||27%|
|Fixed Income and Cash||16||1,883||42%|
|Australian Shares (sectors)||10||1,305||36%|
|Global Shares (sectors)||5||697||96%|
Vanguard performed strongly, recording 69% FUM growth for the year compared to the other two leaders, SPDR and iShares which grew 28% and 32% respectively. Investors continue to be attracted to Vanguards relatively lower fees. This has put pressure on some of the other issuers to improve the competitiveness of their fees. In December, Australia’s largest ETF, the SPDR S&P ASX/200 Australian share fund lowered fees from 0.286% to 0.19% which highlights the fee pressure starting to emerge.
While the top three issuers still account for over 80% of FUM, the smaller new entrants have also attracted large percentage increases in funds this year. BetaShares still leads the rest of the pack by focusing on popular strategies like dividends and cash. UBS and Market Vectors attracted $118M and $205M of new funds respectively. ANZ became the newest entrant in May with six new ETFs but struggled to gain early traction, accumulating just $17M in 7 months, despite its giant brand and broad distribution network.
Dec 2014 ($M)
Dec 2015 ($M)
|Annual change in FUM|
Best and worst performers
Global shares and listed property ETFs generated the best returns for the year, partially due to the fall in the Australian dollar, which benefited those investing overseas. iShares’ growth was supported by the popularity of global ETFs, where it dominates with the majority of products.
The worst performing ETFs of 2015 were all from the commodities space, showcasing the significant decline in commodity prices – particularly oil and natural gas. Fortunately many of the commodity-based ETFs only have small investor bases so the total value lost has been relatively small despite large percentage falls in the range of -30% to -50%.
|ASX code||ETF name||Total FUM
Dec 2015 ($M)
|1 year total return|
|IJP||iShares MSCI Japan||208||20%|
|IXI||iShares S&P Global Consumer Staples||152||19%|
|IXJ||iShares S&P Global Healthcare||437||19%|
|QUAL||Market Vectors MSCI World Ex-Australia Quality ETF||81||16%|
|SLF||SPDR S&P/ASX 200 Listed Property Fund||599||15%|
|ETPNRG||ETFS Energy (collateralised structured product)||0.1||-54%|
|OOO||BetaShares Crude Oil Index ETF-Currency Hedged (Synthetic)||31||-47%|
|ETPGAS||ETFS Natural Gas (collateralised structured product)||0.2||-45%|
|ETPOIL||ETFS Brent Crude (collateralised structured product)||1||-39%|
|QCB||BetaShares Commodities Basket ETF-Currency Hedged (Synthetic)||8||-27%|
Increases and decreases in FUM
The largest dollar increases in new money were spread across the broad Australian share ETFs (STW and VAS), fixed interest and cash (IAF and AAA) and Magellan’s active managed fund (MGE). The global and US share ETFs that featured in our 2015 ETF Report with the largest FUM increases (IVV, IOO, VTS), all saw FUM growth slow as US share market returns moderated.
Negative price performance impacted this year’s biggest FUM outflows, which were focused across commodities (GOLD), Chinese shares (IZZ), Emerging markets (IEM), and small Australian shares (ISO).
‘Smart beta’ lags the broad market
Only 3 ‘smart beta’ strategy ETFs outperformed the Vanguard index ETF (VAS) for the year whereas 10 generated inferior performance, including 6 that underperformed by more than 5%.
|ASX code||Fund type||ETF name||1 year total return|
|AOD||Managed Fund||Aurora Dividend Income Trust||-10.42%|
|RVL||ETF||Russell Australian Value ETF||-4.73%|
|HVST||Managed Fund||BetaShares Australian Dividend Harvestor Fund (Managed Fund)||-4.12%|
|VHY||ETF||Vanguard Australian Shares High Yield ETF||-3.98%|
|YMAX||Managed Fund||BetaShares Australia Top20 Equity Yield Max Fund||-3.90%|
|IHD||ETF||iShares S&P/ASX High Dividend Yield||-2.09%|
|SYI||ETF||SPDR MSCI Australia Select High Dividend Yield Fund||-1.73%|
|GEAR||MF||BetaShares Geared Australian Equity Fund (Hedge Fund)||-1.23%|
|QOZ||ETF||BetaShares FTSE RAFI Australia 200 ETF||-0.34%|
|RDV||ETF||Russell High Dividend Australian Shares ETF||2.18%|
|VAS||ETF||Vanguard Australian Shares ETF
(Broad market Stockspot inclusion)
|ETF||ETF||UBS IQ Research Preferred Australian Share Fund||3.05%|
|DIV||ETF||UBS IQ Research Preferred Australian Dividend Fund||3.37%|
|MVW||ETF||Market Vectors Australian Equal Weight ETF||5.24%|
The two UBS ‘smart beta’ research ETFs that beat VAS in 2015 had underperformed over the previous 2 years so are by no means consistent performers.
We wrote recently about some of the risks we see with the new wave of smart beta ETFs and our position appears justified given their generally lackluster performance.
Fund flows versus 5-year returns
There has been a strong correlation between new FUM flows and trailing 5-year returns. For better or worse, investors tend to chase recent performance. This has led to growing demand for international share ETFs and yield-focused ETFs including property and fixed interest since returns have been strong over the recent past. Conversely, commodity ETFs have seen slowing inflows as commodity prices enter their fifth year of declines.
For full details, download our January 2016 ETF update.
Exchange trade fund (ETF): An open-ended investment fund that is traded on a stock-exchange. ETFs provide direct exposure to a wide range of investments in their asset class such as Australian shares, international shares, bonds or metals.
Broad market ETFs: Track the widest range of securities in the market that has been selected.
Sector ETFs: Track sectors within a market. (e.g. property, financials or resources)
Strategy ETFs: Only include some securities in the market. Securities are selected according to certain rule-based factors (e.g. dividend yield or research rating)
Exchange Traded Managed Fund (ETMF): These securities trade on the ASX like an ETF, but the funds are actively managed by the issuer instead of passively tracking a rules-based index.
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Main image: Karen Roe via Flickr
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