Stockspot has been researching ETFs and managing diversified ETF portfolios for clients since 2014. We’ve been advocating for more investors to use ETFs in their portfolios because of the benefits they offer – instant diversification, low costs, transparency, and ease of access.
Our 2020 ETF Report compares over 200+ ASX listed ETFs and looks at how Australians are investing in them.
10 key research highlights
- Australian ETF market on it’s way to $100b
- Palladium takes out number 1 spot for a 2nd year in a row!
- Gold becomes the most loved asset
- Passive ETFs continue to outperform Active ETFs
- Sustainable ETFs growing at triple the rate of other ETFs
- Investors turn to ETFs during volatile markets
- Happy 30th birthday to ETFs!
- Fee wars persist as competitive pressures mount
- The big 3 ETF issuers in Australia continue to dominate
- Best performers can turn into worst performers
1. Australian ETF market on it’s way to $100b
ETF funds under management (FUM) grew 24% over the past year to $56.9b. The growth was driven by strong market performance in 2019, despite the March 2020 correction. Investors continue to move into passive (index) funds over active managers across all asset classes that have consistently underperformed their benchmarks over the past decade.
Commodity and fixed income (bonds) ETFs were the two fastest growing sectors up 145% and 62% respectively as metals like palladium and gold boomed.
There are now 212 ETFs after the launch of 23 new ETFs over the last year, mainly focused on global share markets. We continue to expect ETF FUM in Australia to reach $100b by 2022 driven by the combination of factors including:
- Australians having an increased focus on fees and transparency of their investments;
- A move out of underperforming active fund managers;
- Regulatory change pushing advisers to act in the best interest of their clients;
- Product innovation; and
- Increased financial awareness of the benefits of diversification.
2. Palladium takes out number 1 spot for a 2nd year in a row!
After returning 52.4% in our 2019 ETF Report, the metal has returned 90.2% over the last year. Over the last 5 years the total return of the fund has been a staggering 363%, meaning an investment of $10,000 in 2015 would now be worth over $36,000.
The strong growth in the metal has come from consistent demand increases for carbon efficient automatible use (such as electric vehicles) particularly in China, and tighter supply constraints including large producers halting productions in response to COVID-19.
Learn more: Best performing ETFs of 2020
3. Gold becomes the most loved asset
There is now $2.3b in physical gold ETFs listed on the ASX, which is more than double the 2019 figure ($906m). The ETFS Physical Gold (GOLD) assets rose almost $1b over the past 12 months on the back of strong performance (up 43% for the year) and $629m of new money from investors into the ETF.
Gold is a key store of value playing an important role in any investment portfolio. It offers diversification benefits, especially when share markets fall or during periods of economic uncertainty. We’ve previously written about the value of gold as a portfolio diversifier in the Stockspot portfolios.
Learn more: Most popular ETFs of 2020
4. Passive ETFs continue to outperform Active ETFs
Over the last year the average Australian shares (broad market) ETFs returned -12.9% outperforming the average Australian shares (active) ETF which returned -16.6%. This continues a trend that has been apparent for many years across ETFs and also Listed Investment Companies (LICs).
An Australian share index ETF like the Vanguard Australian Shares Index ETF (VAS) beat 80% of active Australian share ETFs, while a global share index ETF like the iShares Global 100 ETF (IOO) beat 87% of active global share ETFs.
Active managers often justify their high fees by saying that they can protect investors during market corrections. We’ve explained before why this is a myth. Morningstar data shows that it’s a flip of a coin whether active managers beat the market index during down markets. 48% of active managers were beaten by the market index during the March 2020 sell off.
You might also be interested in: We compare LICs vs ETFs
5. Sustainable ETFs growing at triple the rate of other ETFs
Sustainable ETFs increased 73% over the last year as investors continue to favour strategies that are aimed at investing in an ethical and sustainable way. These investments have been growing at 79% p.a. over the last 5 years (compared to 26% p.a. for other ETFs).
Sustainable ETFs have also been able to deliver good returns amid market turbulence, particularly for global strategies as the average global sustainable ETF returned 8.2% vs the average broad based global ETF of 2.2% thanks to a higher weighting towards healthcare shares and a lower (or zero) allocation to energy shares.
Learn more: The growth of sustainable ETFs in 2020
6. Investors turn to ETFs during volatile markets
ETFs have become a saving grace during economic downturns like COVID-19. ETF trading volume in March 2020 grew to $17.8b setting an all time record month of trading that is almost triple the previous monthly record. There were almost 800,000 ETF trades in March 2020, 8 times the historical 5 year average of 110,000 per month.
The liquidity and transparency of ETFs have allowed investors to express their investment views, while also being a valuable tool to provide real time pricing when markets are volatile. During the market sell-off there was consistent inflows into ETFs both in Australia and other parts of the world, whereas actively managed funds experienced significant outflows.
You might also be interested in: Best ETFs for volatile markets
7. Happy 30th birthday to ETFs!
The world’s first ETF was created in March 1990 in Canada. ETFs around the world now manage USD $5.4T in over 7000 products.1 Australia is still small at 0.7% of the total ETF market, but growing quickly.
ETFs have democratised investing, allowing anyone to access investments previously available to sophisticated investors in a flexible, low cost and easy to access way.
ETFs have only been in Australia for 19 years, but have grown rapidly, surpassing the LIC market (which has been around for over 80 years).
8. Fee wars persist as competitive pressures mount
Three of the major issuers reduced their fees for their Australian share ETFs over the last year. Following the launch of BetaShares Australia 200 ETF (A200) in mid 2018 that charges a small 0.07% fee, Vanguard, Blackrock and State Street cut their fees to ensure they remain competitive. These fee cuts were warranted given the data shows ETFs charging the lowest fees are attracting the greatest sum of money.
Almost half of investors’ money (48%) is flowing into funds charging less than 0.25%. In 2015, 33% of the money in ETFs were in products charging less than 0.25%. Now in 2020 it’s 51%!
The average ETF fee is 0.49% and average weighted fee is 0.34%. Despite the fee reduction, ETF issuers raked in almost $200m in ETF fees.
9. The big 3 in Australia continue to dominate
BetaShares increased their market share by 3% to now account for 16% of all ETFs in Australia (~$9.3b in assets). Vanguard and iShares hold the number 1 and 2 spots with 31% and 24% market share respectively. VanEck and ETF Securities are hot on the heels of SPDR for the number 4 spot.
75% of new money is going into the big 3 providers. Vanguard is still taking 38% of all new money into their ETF suite after taking in $6b over the last year.
Learn more: How the ETFs issuers have performed
10. Best performers can turn into worst performers
Australian listed property was one of the best performers in 2019 with the average property ETF up 29%. Fast forward 1 year, and this was the hardest hit sector being one of the worst performers with the average property ETF down 32%. It’s fall from grace into the bottom performers demonstrates the unpredictability and perils of chasing last year’s winners.
|ASX Code||ETF Name||Mar’19 Rank||Mar’20 Rank||Change|
|MVA||VanEck Vectors Australian Property ETF||2nd best||203rd best||-201|
|QRE||BetaShares S&P/ASX 200 Resources Sector ETF||3rd best||193rd best||-190|
Learn more: Worst performing ETFs of 2020
1 ETFGI Global ETF and ETP Directory March 2020