Australian ETF industry hits $220bn as investors chase strong international gains

Investors are pouring money into exchange traded funds at record pace as many look to chase the strong rallies in overseas markets, defying earlier market predictions.

Australian investors now have $219.5bn in ETF products following a record September quarter. Picture: AFP

Investors are piling into exchange traded funds (ETFs), with assets under management rising to a record high of $219.5bn following robust cash flows over the September quarter, as demand for exposure to international markets saw inflows for the investment class soar.

Analysis by the country’s largest ETF provider, Vanguard, shows that the value of Australia’s ETF industry has risen by more than $46.6bn since the start of this year, fuelled by the combination of strong investor inflows and global sharemarket gains.

Data from the ASX and Vanguard shows investor cash flows into Australian ETFs on a year-to-date basis totalled $23.3bn, including more than $12.7bn over the September quarter.

This compared with $5.38bn of investor inflows over the June quarter and $5.28bn over the March quarter.

It comes as the benchmark ASX 200 has had a bullish run for much of the year, up 8 per cent, amid renewed optimism as central banks globally begin to cut interest rates and inflation begins to slowly return to target.

ASX-listed international equity ETFs, primarily index-tracking funds, have accounted for more than 56 per cent of total inflows this year as investors continue to target the strong growth experienced on US sharemarkets and, to a lesser extent, other offshore markets.

Wall Street has seen record gains this year following the alure of the magnificent seven tech stocks and frenzy around artificial intelligence. Both the S&P 500 and the Nasdaq have rallied by more than 22 per cent.

Vanguard ETF capital markets head Adam DeSanctis said a high percentage of investors see ETFs as the quickest and lowest-cost way to access different types of asset classes and offshore markets.

“The appetite for international equity ETFs by investors is not subsiding and continues to outpace the inflows into Australian equity ETFs and other industry segments,” he said.

“For Australian ETF investors, who now number over 2.2 million, the best investment strategy over 2024 and beyond is to focus on long-term investment growth while staying diversified across different markets and segments.”

A further $7.7bn of investor cash flows were directed into international equity ETFs over the September quarter, bringing the total amount invested in this segment during the nine months to September 30 to over $13bn.

By comparison, around $2.09bn flowed into Australian equity ETFs over the third quarter. This added to the $1.47 billion invested into this segment over the June quarter and the $1.48 billion over the March quarter.

The local ETF industry grew 33 per cent over 2023 to $177.4bn in funds under management as of December 31, analysis from Betashares shows. This was boosted by $15bn of net inflows.

The increase by $46.6bn since the start of the year to $219.5bn is stronger than most market pundits had expected with Betashares in January forecasting that demand could see the investment class end 2024 at between $200bn and $220bn.

Meanwhile, inflows into Australian fixed income ETFs accelerated over the third quarter as investors targeted bond funds to lock in relatively higher income levels.

A total of $1.49bn was directed into Australian fixed income assets over three months to September 30, up from $601m over the June quarter and $694m over the March quarter. Inflows into international fixed income ETFs totalled $446m compared with $286m over the June quarter and $108m over the March quarter.

Digital current products saw inflows climb from $8m in the second quarter to $37m, while Australian property saw $43m in outflow.

Originally published as Australian ETF industry hits $220bn as investors chase strong international gains