Australian ETF industry to soar to $220bn after record year
Our love affair with ETF products shows no sign of slowing after hitting a record $177bn in funds under management last year, with investors having products with exposure to one asset enjoying the best returns.
Australia’s exchange-traded funds are set to have up to $220bn in funds under management in 2024 as demand for fixed income products saw inflows for the investment class surge in the past year.
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 over the past year.
Fixed Income ETFs were the number one category for inflows in 2023 for the first time ever, as the most aggressive rate rise cycle on record by the Reserve Bank helped make the asset class more attractive with a cash rate of 4.35 per cent.
But it was products with exposure to bitcoin that had the best year, with total returns up 215 per cent for the Betashares Crypto Innovators ETF and 151 per cent higher for the Global X 21Shares Bitcoin ETF. This came as the price of the cyprtocurrency more than doubled in the year, and amid expectations of further growth after US regulators approved the first bitcoin ETFs last week.
Betashares chief commercial officer Ilan Israelstam said 2023 marked a changing of the guard for Australia’s investment industry, with cumulative net flows in the Australian unlisted managed funds industry negative for the first time since ETFs were introduced in 2001.
“This clear investor preference for ETFs, plus the increasing ‘conversion’ activity we’re seeing of unlisted managed funds into Active ETFs, represents a significant ‘changing of the guard’ in the Australian asset management industry,” he said.
Mr Israelstam said that the industry will continue to benefit from increased investor adoption and inflows combined with positive markets into 2024, which will help to drive funds under management growth.
“We forecast total industry FUM at end 2024 to exceed $200bn and could reach as high as $220B depending on market conditions,” he said.
The review of the Australian ETF landscape noted that there are now over 2 million Australians investing in ETFs, an increase of 7 per cent from 2022.
The industry boomed during the pandemic when millions of Australians 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 just $40bn to $130bn.
Vanguard Australian Shares Index ETF continued to be the most popular ETF on the market, with inflows of $1.53bn taking the total market cap to $14.4bn in 2023. On average, the fund had an average daily trading value of $36.7m.
The next most popular were Vanguard MSCI Index International Shares and iShares S&P 500 by iShares.
Magellan, which has been plagued with outflows across its portfolio, saw $2.5bn pulled from its Global Fund product, followed by Hyperion Global Growth Companies Fund at $282m.
The best non-crypto ETF was Global X Ultra Long Nasdaq 100 Hedge Fund, which had a total return of 134.9 per cent in the year.
There are now 94 Active ETFs trading on Australian exchanges with a total of $35bn of FUM, but the vast majority of these assets comes from existing FUM that has been converted to the exchange via the ‘open class’ structure, with only $9.5bn currently held on CHESS.
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