A surge in the asset values of exchange-traded funds (ETFs) in Australia has taken the industry to new heights, breaching the $100 billion mark in the first half of this year.
Defying earlier predictions and setting an all-time record, the ETF industry in the country has exhibited an explosive growth pace, dwarfing other local fund products that have been battling substantial outflows.
Accelerated growth amid market uncertainties
Betashares, a leading provider in the ETF space, reported that Australia’s ETF industry has expanded faster than previously expected, achieving a remarkable milestone of A$150 billion (equivalent to $102 billion).
Just last year, Betashares had projected that the industry would reach this figure by the close of 2023, but the ETF landscape has outpaced these projections.
Despite ongoing fluctuations in local markets, Betashares anticipates the ETF industry could escalate beyond A$160 billion before the year concludes.
Interestingly, a substantial 70% of this formidable growth recorded in the first half of the year can be attributed to market appreciation. Even though industry inflows have remained positive over this period, this dynamic implies that the growth isn’t solely dependent on fresh investments.
Over the first half of this year, new funds totaling A$4.8 billion were injected into ETF products, although this was somewhat lower than the A$6.2 billion recorded during the same timeframe last year.
A beacon amid traditional fund outflows
Contrasting with the vibrant ETF landscape, other locally domiciled fund products, such as managed equities and open unlisted unit trusts, have been grappling with substantial outflows.
Data from Morningstar, as cited in the report, reveal that Australian unlisted funds endured a staggering A$23.4 billion in outflows between January and May.
In the report, Betashares asserted that the ETF market in Australia was manifesting an “absolute/relative” narrative.
While the ETF industry growth may be decelerating on an absolute basis compared to the preceding two years, with investors demonstrating more caution about investment allocations, the relative strength of the market has never been more robust.
This strength is particularly conspicuous when juxtaposed with the unlisted active funds sector, which has been marred by outflows.
Dominance of top ETF issuers
As the top domestic issuer in the first half of this year, Betashares attracted about A$1.8 billion in net inflows. Following closely were Vanguard and BlackRock’s iShares, which pulled in A$1.5 billion and A$1.1 billion, respectively.
These three leading managers controlled an impressive 92% of the industry inflows from January to June.
By the end of June, there were a total of 339 exchange-traded products on offer from 44 issuers listed on the Australian Securities Exchange (ASX) and the Cboe. Aligning with global trends, the most favored were fixed-income ETFs, which drew in the largest inflows at A$2.5 billion.
These were followed by Australian equities ETFs that accumulated A$1.6 billion and cash products that garnered A$688 million in net inflows during the first half of 2023.
Bottomline is the ETF industry in Australia is in a strong position, with assets breaching the $100 billion mark, offering investors a diverse and profitable financial landscape, despite global economic uncertainties.
As traditional funds experience outflows, the swift rise of Exchange Traded Funds underscores their appeal to both individual and institutional investors.
