Share market ETFs begin to bounce back

201603-etf-update-banner
 
Our update on the Australian ETF market as at March 2016.

Highlights

  • Monthly FUM growth was 1%, from $20.4 billion in January to $20.6 billion by the end of February 2016.
  • Fixed income and cash is now the third largest ETF sector by FUM, inching ahead of Australian Shares (strategies) as ‘smart beta’ strategies continue to underperform and see outflows. We wrote in January that just 3 smart beta ETFs outperformed the market over 12 months compared to 10 which generated inferior performance.
  • The recent market weakness has started to reverse with fund inflows and positive returns across most sectors for the month.
  • Investors are starting to rotate out of some defensive ETFs including high yield and US Dollar ETFs.

Sectors

Share markets generally performed positively in February, which helped ETF fund flows. The most significant change saw fixed income and cash ETFs overtake Australian shares (strategies) ETFs to become the third largest sector by FUM. Strategy ETFs continue to struggle as the majority of ‘smart beta’ ETFs have underperformed over recent history.

There were no new ETFs or changes in fees for the month. Commodity ETFs were again bolstered by the popularity of gold, with positive inflows into all four gold related ETFs.

Sector Total FUM Feb 2016 ($M) Monthly change in FUM ($M) Monthly change in FUM (%)
Global Shares (broad market) 7,802 112 +1%
Australian Shares (broad market) 5,649 -31 -1%
Australian Shares (strategies) 1,918 -32 -2%
Fixed Income and Cash 2,032 48 +2%
Australian Shares (sectors) 1,322 26 +2%
Global Shares (sectors) 676 10 +1%
Commodity 692 63 +10%
Currency 495 -14 -3%
Total 20,585 182 +1%

201603-etf-update-fum-since-oct14
Source: ASX

Total ETF FUM regained its upward momentum this month after a small decline in January 2016.

Issuers

The ETF issuers generally showed positive returns, albeit with only small increases in funds. Vanguard has continued to achieve relatively large inflows and was able to cement its lead over SPDR, which saw further FUM losses in the past month.

Market Vectors saw significant inflows into its MVW Market Vectors Australian Equal Weight ETF and GDX Market Vectors Gold Miners ETF, as the popularity of gold continued.

Magellan’s active funds are still gaining new funds, whilst K2’s growth reversed.

Issuer Total FUM
Jan 2016 ($M)
Total FUM
Feb 2016 ($M)
Monthly change in FUM
iShares 6,872 6,903 0%
Vanguard 4,559 4,666 +2%
SPDR 4,515 4,402 -3%
BetaShares 2,303 2,310 0%
Russell 628 642 +2%
ETF Securities 481 515 +7%
Magellan 447 486 +9%
Market Vectors 280 307 +9%
UBS 133 167 +25%
Perth Mint 86 94 +10%
K2 68 62 -8%
ANZ 16 19 +17%
Aurora 14 13 -7%
Total 20,403 20,585 +1%

Source: ASX

SPDR’s outflows again exceeded its inflows by a significant margin, with STW losing funds despite a recent reduction in fees to more closely match its competitors.

All other issuers except K2 saw positive net inflows for the month. K2 has struggled to replicate Magellan’s success, continuing to lose funds due weak performance and relatively high fees. The K2 funds returned -6.1% and -3.2% in February.

Issuer FUM Inflows/Outflows
in Feb 2016 ($M)
Average Monthly Return
in Feb 2016 ($M)
iShares 47.93 0.37%
Vanguard 121.76 0.15%
SPDR -68.81 0.54%
BetaShares 22.30 -0.06%
Russell 19.24 -0.67%
ETF Securities 0.20 0.44%
Magellan 28.11 2.74%
Market Vectors 17.97 5.72%
UBS 34.34 -0.37%
Perth Mint 0 9.89%
K2 -2.03 -5.02%
ANZ 2.53 1.52%
Aurora -0.20 -4.39%
Total 223.33 0.82%

201603-etf-update-fum-issuer
Source: ASX

Best and worst performers

Despite a reprieve from the recent market downturn, the top and bottom 12 months performers have not changed much since last month. The top 12 month performers remained defensive ETFs, with BetaShares Australian Equities Bear (Hedge Fund) providing the highest returns at 16%.

The popularity of gold also has continued on the back of a positive monthly performance and 20% return year to date. The iShares S&P Global Consumer Staples ETF has also remained in the top performers despite volatility in the stock market due to the defensive nature of its holdings and Australian dollar declines.

ASX code ETF name Total FUM
Jan 2016 ($M)
1-year total return
Positive performance
BEAR BetaShares Australian Equities Bear (Hedge Fund) 58 16%
PMGOLD Perth Mint Gold 94 11%
GOLD ETFS Physical Gold 458 11%
IXI iShares S&P Global Consumer Staples 152 9%
USD BetaShares U.S Dollar ETF 480 9%
Negative performance
OOO BetaShares Crude Oil Index ETF-Currency Hedged (Synthetic) 40 -52%
ETPOIL ETFS Brent Crude (collateralised structured product) 1 -47%
ETPGAS ETFS Natural Gas (collateralised structured product) 0.2 -43%
EPTPMD ETFS Physical Palladium 0.7 -35%
GEAR BetaShares Geared Australian Equity Fund (hedge fund) 74 -34%

Source: ASX

Increases and decreases in FUM

Funds flowed into select defensive ETFs with bonds and gold representing 3 of the top 5 spots.

STW saw the largest outflows by far, followed by the BetaShares Yield Max ETF which experienced weak performance of -3.4%. Funds also came out of the Vanguard High Yield ETF and US Dollar ETF, showing that investors are rotating out of some defensive positions that have worked over the past 6-12 months.

ASX code ETF name Monthly change in FUM ($M) 1-year total return
Increases in FUM
UBA UBS IQ MSCI Australian Ethical ETF 38 0%
GOLD ETFS Physical Gold 35 0%
IAF iShares Composite Bond ETF 32 11%
RSM Russell Australian Semi-Government Bond ETF 29 -13%
IVV iShares Core S&P 500 19 2%
Decreases in FUM
STW SPDR S&P/ASX 200 -107 -14%
YMAX BetaShares Australia Top20 Equity Yield Max Fund -17 -17%
USD BetaShares U.S Dollar ETF -12 9%
VHY Vanguard Australian Shares High Yield ETF -12 -20%
IOO iShares S&P Global 100 -9 -4%

Source: ASX

Themes

Stockspot Themes is a new offering that lets qualifying clients steer the direction of their portfolio by choosing from 14 different investment themes. Themes are combined with the Stockspot Model Portfolios to create personalised portfolios that are diversified across thousands of companies.

Over the past 12 months, the property and defensive themes have generated the highest returns with most of the Australian and Global share themes coming off the back of a weaker 12 months. The longer-term performance looks a lot more positive with iShares Core S&P 500 (IVV) and Vanguard Australian Property Securities Index ETF (VAP) generating the best 3 and 5 year returns.

Australian shares

Theme 1-year total return 3-year total return (p.a.) 5-year total return (p.a.)
Australian dividend shares
Vanguard Australian Shares High Yield ETF (VHY)
-20.15 0.48%
Australian large companies
SPDR S&P/ASX 50 (SFY)
-16.21% 2.18% 4.82%
Australian small companies
Vanguard MSCI Australian Small Companies Index (VSO)
-6.23% -0.57%
Australian socially responsible shares
Russell Australian Responsible Investment ETF (RARI)

Global shares

Theme 1-year total return 3-year total return (p.a.) 5-year total return (p.a.)
US shares
iShares Core S&P 500 (IVV)
1.98% 24.50% 17.95%
Asian large companies
iShares S&P Asia 50 (IAA)
-12.62% 7.68% 5.92%
Chinese shares
iShares FTSE China Large-Cap (IZZ)
-23.79% 6.42% 2.74%
Japanese shares
iShares MSCI Japan (IJP)
-0.96% 17.09% 8.08%
Global (non-US) shares
Vanguard All-World ex US Shares Index (VEU)
-9.99% 10.06% 5.69%
European shares
iShares Europe ETF (IEU)
-9.59% 12.30% 7.29%

Property

Theme 1-year total return 3-year total return (p.a.) 5-year total return (p.a.)
Australian property
Vanguard Australian Property Securities Index ETF (VAP)
5.86% 13.98% 14.34%
Global property
SPDR Dow Jones Global Select Real Estate Fund (DJRE)
1.02%

Bonds and cash

Theme 1-year total return 3-year total return (p.a.) 5-year total return (p.a.)
High interest cash
BetaShare Australian High Interest Cash ETF (AAA)
2.66% 3.19%
Global bonds
Vanguard International Fixed Interest Index (Hedged) ETF (VIF)

 

February performance

US shares and property were the best performing themes in February while Chinese, Japanese and Australian shares were weaker.

Theme Total FUM
Feb 2016 ($M)
1-month total return 1-year total return
Top monthly performance
US shares
iShares Core S&P 500 (IVV)
1897.17 1.75% 1.98%
Australian property
Vanguard Australian Property Securities Index ETF (VAP)
533.73 1.48% 5.86%
Global property
SPDR Dow Jones Global Select Real Estate Fund (DJRE)
72.14 1.46% 1.02%
High interest cash
BetaShare Australian High Interest Cash ETF (AAA)
842.96 0.20% 2.66%
Asian large companies
iShares S&P Asia 50 (IAA)
239.45 0.07% -12.62%
Bottom monthly performance
Chinese shares
iShares FTSE China Large-Cap (IZZ)
69.27 -3.01% -23.79%
Australian dividend shares
Vanguard Australian Shares High Yield ETF (VHY)
589.46 -2.86% -20.15%
European shares
iShares Europe ETF (IEU)
594.95 -2.55% -9.59%
Japanese shares
iShares MSCI Japan (IJP)
206.36 -2.17% -0.96%
Australian large companies
SPDR S&P/ASX 50 (SFY)
420.48 -1.81% -16.21%

Source: ASX

Historical Distribution Yield

201603-etf-update-theme-yields

The Australian share and strategy ETFs have generated the highest distribution yields over the past 12 months, followed by Asian and other international share ETFs.

The US share and international property ETFs now offer even lower distribution yields than the Australian cash ETF (AAA). This highlights the flight to quality that has occurred over the past 12 months which has pushed US share and property yields to historically low levels.

Glossary

Bear hedge fund: A hedge fund designed to provide higher returns as the market falls, it may track the inverse of an index as an ETF.

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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Chris Brycki

Stockspot Founder and CEO

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