Exchange traded funds boom continues amid markets volatility

Investors pumped more money into a fast-growing financial product even as shares tumbled earlier this month. Here’s why.

Volatile sharemarkets have failed to stop the rapid growth of exchange traded funds this year, as investors seek to protect themselves from rising global risks.

Diversification is one of the biggest benefits of ETFs, in which a single share gives investors exposure to all the companies in a particular market index.

Younger generations are leading the charge in their uptake.

Investment companies say funds have continued flowing into ETFs this year despite the markets maelstrom, and a new analysis by IG Australia found that multiple ETFs were among the 10 most purchased stocks by Australian investors during April’s sharemarket turmoil.

IG’s research found people aged 25-to-34 were 33 per cent more likely to invest in ETFs than over 65s.

Exchange traded funds are especially popular among younger investors. Picture: iStock

IG Australia market analyst Tony Sycamore said this was most likely because ETFs were still a relatively new product.

“Given the reduced appetite for risk of this older cohort, ETFs can present an appealing choice thanks to the diversification benefits they offer,” Mr Sycamore said.

“At last count, there were over 8,000 ETFs tracking various indices, sectors, commodities, and other assets.

“What we can see is that volumes across some ETFs have likely been driven higher by the recent volatility episode, particularly in leveraged, gold and tech-focused ETFs.”

State Street Global Advisors head of intermediary for Australia Tim Bradbury said ETFs were excellent tools for wealth advisers, DIY investors and also institutional investors, which used them to manage risk during market volatility “by purchasing a broad market exposure through a single trade”.

“During periods of high volatility, some advisers will switch to passively managed solutions which is increasingly via ETFs,” he said.

“The asset size of ASX-listed exchange-traded products was $242.5 billion as of 31 March 2025, according to ASX. It grew 26 per cent in the past 12 months.”

It had quadrupled in just five years, he said, noting in March 2020 the asset size was $56.6bn.

Mr Bradbury said State Street Global Advisors research found 65 per cent of Millennials in Australia had ETFs, higher than Generation X (44 per cent) and baby boomers (31 per cent). This was likely because of their accessibility and diversification, he said.

“As younger generations progress professionally and accumulate or inherit wealth, we anticipate their preference for ETFs will propel growth.”

A separate report released this month by Global X found $37bn flowed into Australian ETFs in the year to March 31.

Global shares took the biggest chunk of money, at $17.3bn, while Australian share ETFs received $9bn and fixed income ETFs $7.3bn, it says, with commodity ETFs growing strongly as more investors sought to diversify into alternative assets such as gold.

Global X senior product and investment strategist Marc Jocum said investors had continued to buy ETFs “despite the recent market turbulence”.

“In Australia, ETFs have attracted at least $2-$3bn in net inflows so far in April, with the number potentially much higher once all data is finalised, as investors used ETFs to capitalise on the volatility,” he said.

“Many have used the opportunity to buy the dip to top up their portfolios.

“We are currently on track for 11 consecutive months of inflows exceeding $2bn each month, highlighting the resilience and growing role of ETFs in investor portfolios even during uncertain times.

“Investors prioritised diversified, liquid, and transparent exposure to navigate the uncertainty, and a trend we have observed is that the majority are favouring index-based strategies over higher-cost active management.”

Originally published as Exchange traded funds boom continues amid markets volatility