Australian ETF industry to surpass $300bn in 2025 on a record year of inflows and performance

A year after taking a record $33bn of cash inflows in 2024, experts believe Australian exchange-traded funds will surpass more than $300bn under management by the end of 2025.

Australian investors flocked to ETF products in 2024 as many looked to grab a slice of strong gains in the US. Picture: AFP

Exchange-traded funds are set to have more than $300bn in funds under management by the end of 2025 as demand for fixed income products smashes previous highs set during Covid-19 years.

ASX-listed ETFs attracted a record $33.49bn of investors’ cash inflows in 2024, smashing the previous $23.6bn post-Covid full-year inflows record set in 2021, according to Vanguard.

The local ETF industry increased 38 per cent last year to $239.09bn in funds under management as of December 31, analysis shows. It was a rise of $66.2bn from the $172.87bn total reached at the end of 2023 as investors took advantage of strong returns on Australian and offshore equities.

Betashares has forecast that Australians will hold more than $300bn in ETF products by the end of 2025 should markets remain positive. The fund manager said it had previously underestimated the rapid growth in demand for ETFs, having forecast it to only exceed $200bn in funds under management if market conditions were extremely strong.

“While we were correct regarding positive inflows and market growth, we underestimated the scale of net flows by some margin, while market conditions were very conducive for growth exposures which contributed strongly to the growth in market size,” Betashares chief executive Alex Vynokur said.

“Despite a very strong period of growth for the Australian ETF industry, exchange-traded funds still only account for approximately 4 per cent of the managed funds industry in Australia – a figure that is low compared to many other international markets. Over the coming five years and beyond, we expect investor adoption of ETFs to accelerate further.”

The industry boomed during the pandemic, when millions of people locked down diverted savings into ETFs at a time of great growth for the bourse. From July 2019 to July 2021, funds under management increased from $40bn to $130bn.

VanEck Asia-Pacific chief executive Arian Neiron said ETF products had become popular for investors since they were easy to understand and offered the ability for someone to achieve significant diversity at a low price point.

“You’ve got just about every kind of ice cream flavour you could want in the ETF industry now. If you want exposure to defence, bonds, private credit or Australian shares, there are products for investors,” Mr Neiron said.

“One client told me what they love about ETFs is the ability to sit there any time of day and look at the price compared to unlisted managed funds where you can wait up to 10 days to know the price after putting in an application. Knowing the price in real time can also be a poison chalice.”

The top four issuers – Vanguard, Betashares, iShares and VanEck – accounted for 96.4 per cent of net flows, according to Vanguard.

The Vanguard Australian Shares Index ETF, which invests in the top 300 companies on the ASX, remained Australia’s largest ETF after its assets under management increased by more than $3bn last year to $17.8bn.

The next most popular was the iShares S&P 500, which had $11.03bn in assets under management, and the Vanguard MSCI Index International Shares, which had a market cap of $10.37bn, ­according to Betashares.

Analysis from VanEck showed that the Global X 21Shares Bitcoin ETF was the best performing product in 2024 with returns of 146 per cent, amid a similar increase in bitcoin during the year, particularly following Donald Trump’s US presidential election win in November.

Vanguard ETF Capital Markets head, Asia-Pacific, Adam DeSanctis said low-cost index products, which hold more than 80 per cent of the Australian industry’s assets, continued to capture most investor inflows, despite the proliferation of new active ETF products. “It’s clear that more Australian investors than ever are using ETFs to access offshore markets,” Mr DeSanctis said.

Vanguard’s MSCI Index International Shares ETF attracted close to $2bn in investor cash flows last year, which helped to lift its total assets under management to almost $10bn.

Returns have been driven by a strong year for US equities, with the tech-heavy Nasdaq up 28 per cent for the year, the S&P 500 climbing 25 per cent and the Dow Jones Industrial Average adding 14 per cent.

Originally published as Australian ETF industry to surpass $300bn in 2025 on a record year of inflows and performance