Our update on the Australian ETF market as at February 2016.
- Monthly FUM growth was negative for the first time since August 2015. Funds invested in ASX listed ETFs fell -4%, from $21,335M in December 2015 to $20,403 at the end of January 2016. Most of the impact came from market falls since the majority of ETFs still attracted new inflows for the month.
- Vanguard became the second largest ETF issuer by FUM in Australia, inching ahead of SPDR.
- Several ETF reduced their Management Expense Ratios (MERs) including a Stockspot portfolio inclusion – the iShares Composite Bond ETF (IAF) from 0.24% to 0.20%.
- iShares has now reduced fees for 14 of its ETFs in the past 2 months while SPDR reduced fees for international ETFs WXHG & WXOZ by over 0.1%. Blackrock and SPDR both appear to be feeling fee pressure from Vanguard which has grown its footprint rapidly over the past 12 months.
- After several years of underperforming the broader Australian market, UBS changed the reference index on two ETF from UBS research-based indices to Morningstar indices. Selective backtesting and the willingness to switch reference index were two of the key risks we recently highlighted in our article on smart beta ETFs.
January 2016 saw volatility and share market falls across the globe which led to the first negative month of ETF FUM growth since August 2015. In a reversal of recent trends, the commodities sector had the highest monthly increase in FUM largely due to a 10% rise in the gold price. The Stockspot portfolio inclusion, Physical Gold ETF (GOLD), saw an increase of nearly $40M in FUM over the past month as a result.
Inflows into the fixed income and cash sector also highlights risk aversion during January. BetaShares’ Australian High Interest Cash ETF (AAA) added $50M of new FUM. Other Australian bond ETFs, including IAF, RSM and VAF also received over $10M of new FUM each during January.
|Sector||Number of products||Total FUM
Jan 2016 ($M)
|Monthly change in FUM|
|Global Shares (broad market)||49||7,690||-5%|
|Australian Shares (broad market)||15||5,680||-8%|
|Australian Shares (strategies)||16||1,950||-7%|
|Fixed Income and Cash||16||1,983||+5%|
|Australian Shares (sectors)||10||1,296||-1%|
|Global Shares (sectors)||5||667||-4%|
Despite losses in overall FUM due to a weaker market, there was still positive inflows of $27M into the Australian ETF sector in January 2016.
Passive funds have been consistently attracting more inflows than actively managed funds since 2007. As a result, passively managed money has doubled from $2 trillion to $4 trillion globally in just 5 years. We see this trend continuing since stock picking fund managers will find it even more difficult to generate market-beating returns as more money floods into passive management.
Source: Morningstar, WSJ
ETF Securities and BetaShares benefited from the uptick in some commodity prices. In some good news for the smaller ETF issuers, the top 3 issuers combined (SPDR, Vanguard and iShares) account for less than 80% of the ETF market for the first time.
SPDR’s significant decline in FUM came from its stalwart S&P/ASX200 (STW) ETF, with the largest ETF on the ASX losing around 10% ($322M) of its FUM in January, whilst the Australian share market only fell 5%. The outflow of nearly $146M was the highest from one ETF since October 2014. The SPDR S&P/ASX200 ETF has struggled against the Vanguard Australian Shares Fund (VAS), whose fees have been lower by almost half. In December, SPDR announced a reduction in fees for the STW fund from 0.286% to 0.19% to more closely compete with the Vanguard fund (VAS) which charges 0.15%. Stockspot continues to hold the Vanguard fund for clients as it offers greater diversification benefits and has a lower expense ratio.
The reduction in fees has otherwise largely occurred in the global shares sector, following their immense popularity and growth over the past year. iShares reduced fees by 0.05% to 0.01% for 14 of its ETFs in December and January, but increased fees by 0.01% for its South Korea (IKO) and Taiwan (ITW) based ETFs and 0.02% for its China focused ETF (IZZ).
Dec 2015 ($M)
Jan 2016 ($M)
|Monthly change in FUM|
SPDR and UBS were the only 2 issuers to see net outflows for the month after accounting for market falls.
The UBS IQ Research Preferred Australian Share Fund (ETF) had a decline in FUM of approximately 75% or $42M, from $55M in December 2015 to $13M by the end of January 2016. The UBS IQ Research Preferred Australian Dividend Fund (DIV) showed only minor changes from $23.3M to $22.1M.
After several years of underperforming the broader Australian market, UBS changed the reference index on these 2 ETFs from UBS research-based indices to Morningstar indices. Selective backtesting and the willingness to switch reference index were 2 of the key risks we recently highlighted in ‘Should you buy into smart beta ETFs?‘.
in Jan 2016 ($M)
|Average Monthly Return
in Jan 2016 ($M)
Best and worst performers
After a tough 12 months in global share markets, Australia’s top performing ETFs over the past year have returned a modest 7% to 10% and cover a range of sectors. Despite a rebound in January, commodity ETFs still dominate the worst performing ETFs over the past year.
|ASX code||ETF name||Total FUM
Jan 2015 ($M)
|1 year total return|
|IXI||iShares S&P Global Consumer Staples||153||10%|
|USD||BetaShares U.S Dollar ETF||492||9%|
|VAP||Vanguard Australian Property Securities Index ETF||534||8%|
|SLF||SPDR S&P/ASX 200 Listed Property Fund||605||7%|
|UMAX||Betashares S&P 500 Yield Maximser Fund (Managed Fund)||55||7%|
|ETPGAS||ETFS Natural Gas (collateralised structured product)||0.2||-45%|
|OOO||BetaShares Crude Oil Index ETF-Currency Hedged (Synthetic)||33||-43%|
|ETPOIL||ETFS Brent Crude (collateralised structured product)||1||-37%|
|OZR||SPDR S&P/ASX 200 Resource Fund||17||-32%|
|ETPNRG||ETFS Energy (collateralised structured product)||0.1||-31%|
Increases and decreases in FUM
The largest increases in FUM flowed to fixed income and cash, as well as ETFs with more defensive strategies. Cash and bond ETFs took 3 of the top 5 positions, with gold and the BetaShares BEAR hedge fund highlighting the shift of funds into ETFs that tend to benefit from risk aversion and equity market falls.
|ASX code||ETF name||Monthly change in FUM ($M)||1 year total return|
|Increases in FUM|
|AAA||Betashares Australian High Interest Cash ETF||50||-1%|
|GOLD||ETFS Physical Gold||40||3%|
|IAF||iShares Composite Bond ETF||34||1%|
|RSM||Russell Australian Semi-Government Bond ETF||30||2%|
|BBOZ||BetaShares Australian Strong Bear (Hedge Fund)||23||n/a|
|Decreases in FUM|
|STW||SPDR S&P/ASX 200||-322||-6%|
|IVV||iShares Core S&P 500||-110||5%|
|VAS||Vanguard Australian Shares Index||-87||-6%|
|VTS||Vanguard US Total Market Shares Index||-50||1%|
|IOO||iShares S&P Global 100||-47||3%|
The greatest declines in FUM occurred in the larger share market ETFs. This is the result of the market downturn, as both market movements and fund flows affect the overall amount of FUM in 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.
Low fee, hassle-free investing
Stockspot is Australia’s fastest growing automated investment service. We can help you build and manage a personalised portfolio tailored to your financial situation and your goals. With Stockspot, there’s no paperwork, no need to be an expert and no hassles.
Main image: Tania Liu via Flickr
- Global share ETF growth exploded in 2015
- Why bonds belong in your portfolio
- Should you buy into smart beta ETFs?
- Investment traps you can avoid