ETFs continue to disrupt the asset management industry

ETFs continue to be the biggest disruptor to the asset management industry and at the same time are blurring the lines between different styles of investing.

Over the past 15 years, over US$2 trillion has moved out of active funds and into index funds and ETFs. Globally the ETF market is projected to reach US$10 trillion by 2020 and be larger than the active managed fund market by 2027.

Flows from active to passive funds in US shares

Growth of ETFs in Australia

The use of ETFs in Australia continues to grow at a phenomenal rate. The local ETF market grew from $27.2 billion to $36.2 billion (33% growth) over the past year.

ETFs have become popular in Australia with individual investors, advisers and Self Managed Super Fund (SMSF) trustees due to their low-cost, transparency and diversification benefits, as well as being available on the ASX.

SMSFs and older Australians are turning to ETFs to earn a better return than cash or term deposits but with lower risk than direct shares. ETFs are giving Australian retirees and pre-retirees exposure to global shares and bonds, improving their overall diversification while reducing risk.

Meanwhile ETFs are becoming the first investment experience for many younger Australians via robo-advisers or round-up apps.

Recently the Royal Commission into Banking Misconduct has put a spotlight on the conflicts caused by the vertical integration of the banks and typical investment products that they recommend to clients. The beneficiaries of this likely to be independent non-aligned advisers – many of whom recommend ETFs.

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Latest ETF trends

This year in our 4th annual ETF Report we’ve analysed over 175 ETFs by looking at factors like fees, performance, size and activity. We also look at recent ETF market trends including the continued growth in global ETFs, the wide gap between the performance of different sectors and styles and the mixed performance of active and smart beta ETFs.

Report highlights

  • ETF funds under management grow 33% over the past year to $36.2 billion
  • Global ETFs and Fixed Income ETFs made up 18 out of 23 new listings
  • Biggest winner was the Vanguard Australian Shares Index ETF (VAS) which grew by $715 million
  • Biggest loser was the BetaShares Australian Dividend Harvester Fund (HVST) which lost $218 million
  • In Australia, small companies and growth shares outperformed banks and dividend shares
  • Globally, tech shares and emerging markets outperformed other sectors and developed markets
  • Vanguard continued its dominance with $3 billion of ETF growth (45%)
  • Several active ETFs listed on the ASX but their performance has ben lacklustre

We hope you find our free report useful.

For the full report:

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Founder and CEO

Chris has been vocal in calling out the industry 'Fat Cats' and is known for telling it as it is. He sits on two Advisory Committees for the industry regulator ASIC, and was previously a fund manager at UBS. He holds a Bachelor of Commerce (Accounting/Finance Co-op Scholarship) from UNSW.

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