ETFs have continued to grow in size, increasing 26% over the past year to $45.8 billion in FUM. Since 2014, ETF assets have grown at a compound annual growth rate of 34%.
That’s a doubling in size over the next 3 years driven by more investors abandoning direct shares and managed funds as has been happening in other markets like Europe and the USA.
To put that in perspective, $100 billion would still only be a small part of the global ETF pie, expected to reach AU$17 trillion by 20231, meaning Australia will only make up 0.6% of the global ETF market.
ETF demand will continue to be driven by investors appetite for low cost transparent products by direct investors and advisers, increasing product innovation, a continual shift from active underperforming active funds into indexed products, and the growth of digital wealth managers adopting ETF based portfolios.
Some common themes we think will playout in the ETF landscape:
- The large, broad market ETFs will continue to dominate inflows – as more Australians become educated about the benefits of index investing over picking individual securities or paying for high cost active funds management.
- Growth of Bond ETFs – as investors, particularly SMSFs who have low exposure to bonds, learn about the diversification benefits of high grade bonds in a portfolio to cushion share market falls.
- Rise in Global Sectors and Strategies – since investors continue to want the ability to add extra exposure to sectors and strategies that are not available or underweight in the Australian share market.
- Exchange Traded Managed Fund (ETMFs) – as active managers continue to try to remain relevant many are launching ETF-like wrappers around their active funds in an attempt to gain visibility and potential inflows.
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1 Blackrock: Four big trends to drive ETF growth (2018). Converted USD into AUD.