Since 2017, the ETF market has grown at a compound annual growth rate of about 38%. This year the ETF market in Australia grew 32% from $56.9 billion in the past year to $135.7 billion. ETFs are growing at a faster rate in Australia than in other regions like the U.S. and Europe.
ETFs have become increasingly popular with individual investors, advisers and self-managed super fund (SMSF) trustees. This is because ETFs are easily available on the ASX, as well as being low-cost, transparent and providing diversification benefits.
The past 12 months saw 35 new ETFs being launched on the ASX and Cboe Australia, and 2 ETFs closing down. As of March 2022, there were 266 ETFs available in Australia.
In our 2022 ETF Report, we’ve analysed more than 250 Australian ETFs by looking at factors like fees, performance, size and activity. We also look at recent ETF market trends including flows, investor behaviour, product innovation and broad ETF market trends.
The Australian ETF landscape in 2022
The past year showcased the unpredictability of share markets, and highlighted the importance of diverse investments such as ETFs.
Low-cost ETFs displayed relative stability during the market volatility of the COVID-19 pandemic and geopolitical tensions and inflation concerns in 2022. While many unlisted managed funds continue to see outflows, ETFs are attracting inflows, providing liquidity as well as superior performance. Because of this and other factors, ETFs are becoming the preferred investment vehicle for many investors.
The increased number of ETF products available combined with the growing number of low-cost investment platforms have made it easier for Australian investors to build a diversified portfolio of ETFs. Investment advisers continue to move away from recommending internal products from big banks, favouring agnostic products like ETFs.
We expect the adoption of ETFs to continue to rise as investors demand trustworthy fit-for-purpose funds to look after their hard-earned money.
Why we create the ETF report every year
Many Australians find investing difficult because of the speed at which new products are released and the lack of transparent information. Currently, there are more than 250 ETFs available in the Australian market, so knowing which one is best for your circumstances can be a confusing exercise.
Despite the complexity of products, ETFs are still a fantastic way to achieve your financial goals – and it seems that many investors agree. The ETF market continues to grow at a faster rate than other investment products, growing at three times the rate of LICs and eight times the rate of managed funds.
As ETFs increase in popularity year-on-year, we believe it’s incredibly important that Australians are educated about ETF performance in a simple, jargon-free way. That’s why we do the research and provide clear insight – so you can make the decision that’s best for you.
ETF report methodology
We’ve analysed the publicly available information from the ASX and Cboe Australia to research more than 250 ETFs available for Australian investors.
We look at key metrics like exposure (which companies and securities are included), fees, size, liquidity, performance, and risk. We look at ETFs over a multi-year time period, as ETF performance can differ from year to year.
We group the ETF universe into five main sectors and 11 sub-categories:
Main ETF sectors
- Australian shares (broad market, sectors, strategies and active)
- Global shares (broad market, sectors, strategies and active)
- Fixed income and cash
- Commodity
- Currency
ETF sub-categories
Broad market share ETFs track regions and countries using a market capitalisation (based on size) methodology.
Sector ETFs track the movements of various sectors or industries in the market such as property, financials and resources.
Strategy ETFs use a rules-based methodology that is not relating to market capitalisation, including things like factors, styles or sustainability.
Active ETFs are known as exchange traded managed products that do not track an index and are rather managed by a professional fund manager trying to outperform the market.
Fixed income and cash ETFs offer exposure to bonds and cash investments that are important building blocks of a diversified portfolio.
Commodity ETFs cover natural resources and commodity sectors such as gold, oil and agricultural products.
Currency ETFs track the performance of various currencies such as the USD, pound and euro.
Fund performance and market data is at 31 March 2022.
What to do if you’re not happy with the ETFs you’re invested in
While ETFs are easily bought and sold, many ETFs struggle to deliver to investors the returns they want. We found that many ETFs fail to beat a broad market-based share ETF over the past 12 months.
If you’re not happy with the ETFs you’re invested in, you may want to reconsider your strategy in the context of your investment timeframe. Once you have a goal that you want to reach and you know the number of years you’ll be invested for, you can construct an ETF portfolio that matches these needs. Performance will always go up and down, but over the long-term, you should track towards the outcomes you’re looking for.
If setting up a custom portfolio sounds difficult, you can use a platform like Stockspot to advise you and buy and sell ETFs on your behalf.
