Welcome to our fourth Australian ETF report which aims to help investors understand and compare ASX listed ETFs. We want to provide investors with an objective, independent view of the ETF landscape.
The use of ETFs in Australia continues to grow at a phenomenal rate. The local ETF market grew from $27.2 billion to $36.2 billion (33% growth) over the past year. In Australia ETFs have become popular with individual investors, advisers and Self Managed Super Fund (SMSF) trustees due to their low-cost, transparency and diversification benefits, as well as being available on the ASX.
ETFs continue to be the biggest disruptor to the asset management industry and at the same time are blurring the lines between different styles of investing. Over the past 15 years, over US$2 trillion has moved out of active funds and into index funds and ETFs. Globally the ETF market is projected to reach US$10 trillion by 2020 and be larger than the active managed fund market by 2027.
Australian share ETFs had a relatively low average return of 2.1% after fees for the year including a 4-5% dividend yield.
Market-cap based ETFs fared better than smart beta and active ETFs with a 5.5% average return and the three top performers.
Smart beta ETFs returned 1.9% and active ETFs -1.8%.
Funds invested in small cap companies out-performed large cap funds across the three groupings of ETFs, while growth focused shares beat high-dividend paying companies.
The average return of 3.4% was the fifth highest across ETF groups, ahead of Australian share and fixed income ETFs. This group’s average returns are affected by the wide range of returns, with a 26% difference between the best and worst performers.
The resources sector has grown less rapidly after exceptionalperformances of up to 40% last year, but has provided highreturns ranging from 17% to 19% and is the only sector with allpositive inflows since November 2017.
The financial sector ETFs all had negative returns clustered around -7%.
Global shares had the highest average return of all groups with 12.8%. This group had the third fastest rate of FUM growth of 45% after global share sector ETFs and fixed income ETFs. With the greatest amount of FUM growth, more than double that of the next group, it managed to overtake Australian share ETFs to become the largest overall group of ETFs.
The average returns of 3.8% for global sector ETFs was the fourth highest, ahead of Australian shares, Australian sector and fixed income ETFs. It had the highest growth of FUM at 66% and the $660 million increase in FUM was the fourth largest amount across all groups.
As sector ETFs focus on specific industries, a wide range of returns from 17% to -10% is not surprising.
This group offers exposure to fixed income and cash products from Australia and overseas. They are an important building block of a balanced investment portfolio, providing a cushion against the volatility of share market ETFs.
Fixed income and cash ETFs had the second lowest average returns over the year of 2.8%. This group has the third highest distributions with a 2.7% average, behind Australian shares and Australian sector ETFs. It also had the second fastest FUM growth of 47%, behind global share ETFs, to retain its place as the third largest group by FUM and has the lowest average fee for all groups.
This group had little variance in performance amongst the ETFs, with all returns ranging from 1.9% to 4.1%. This is unsurprising as all products are driven largely by Australian and global interest rates and credit spreads.
These ETFs cover the natural resources and commodity sectors. The Structured Products, or synthetic ETFs hold financial contracts rather than owning the physical underlying assets. This is usually for commodities such as oil and agricultural products, which mainly have value in their use and in large quantities. Physically backed ETFs offer the most direct approach, but incur the cost of storage and insurance. This is the most common approach for gold products and some other precious metals, with procedures for storing gold bars being well established over time.
Commodity ETFs had the second highest average returns with 4.8% behind global shares. Their 14% growth rate of FUM was the second lowest and it remained the second smallest group ahead of currency ETFs.
The majority of funds under management are managed by the largest 4 ETF issuers with iShares, Vanguard, SPDR and BetaShares accounting for 85% of funds in order of size. These issuers are the businesses that build and issue the ETFs to the public.
iShares (owned by BlackRock) has retained its position as the leading issuer in Australia with $2,618 million in new FUM. Their globally focused ETFs gained from strong share market returns. It launched two new fixed income ETFs in the past the year.
Vanguard continued its rapid growth by growing FUM by 45% and is now just behind iShares with 28% of all FUM compared to iShares’ 29%. It launched four new multi-asset ETPs and a new global bond ETF to expand their fixed income offerings.
SPDR had a relatively low growth rate of 6%, it has struggled to keep up with competitive pressures on fees over the past few years. Australia’s largest ETF by FUM, the SPDR S&P/ASX 200 (STW) received 40% of SPDR’s total inflows. SPDR now hasn’t launched any new ETFs or changed any fees for two years.
BetaShares had strong FUM growth of just under $1 billion as well as launching six new funds. BetaShares has partnered with several active managers to launch new active ETMFs this year. BetaShares has always focused on more actively managed ETF strategies so it’s a natural move for them to partner with other active managers to help manufacturer and distribute their products within an ETMF wrapper.
VanEck Vectors more than doubled its FUM over the year with the highest rate of FUM growth of any issuer at 126%. Its new fixed income ETFs – VanEck Vectors Australian Floating Rate ETF (FLOT) and VanEck Vectors Australian Corporate Bond Plus ETF (PLUS) – accounted for a fifth of their growth.
Magellan continued to attract funds to its actively managed products with a 40% growth rate of FUM. Its flagship international shares fund (Magellan Global Equities Fund [Managed Fund] [MGE]) received majority of the funds and its infrastructure option (Magellan Infrastructure Fund [Currency Hedged] [Managed Fund] [MICH]) also grew by nearly $100 million.
ETF Securities inherited eight ETFs from their dismantled joint venture with ANZ in May 2017, which are included in the final figures and growth rates. It launched two new sector specific ETFs, an infrastructure product (ETFS Global Core Infrastructure ETF [CORE]) as well as one ETF product that invests in companies associated with robotics and automation. (ETFS ROBO Global Robotics and Automation ETF [ROBO])
Russell had a low, but positive growth rate for FUM of 6%. Its corporate bond ETF (Russell Australian Select Corporate Bond ETF [RCB]) captured 97% of total FUM growth. Their smart beta value ETF (Russell Australian Value ETF [RVL]) will close down in May due to lack of demand.
Platinum listed its two managed hedge fund products in September 2017. Its Asia focused fund (Platinum Asia Fund [Quoted Managed Hedge Fund] [PAXX]) launched with $30 million under management and global shares fund (Platinum International Fund [Quoted Managed Hedge Fund] [PIXX]) with $40 million. Both products have continued to grow strongly, coinciding with a period of outperformance for their funds.
UBS continued its gradual FUM growth and launched one new cash ETF (UBS IQ Cash ETF [MONY]).
Perth Mint’s single gold ETF attracted $18 million of new funds.
Switzer saw FUM for its Australian shares managed fund product grow by one quarter.
Montgomery Investment Management listed its first ETF - a global shares managed fund.
AMP ETFs grew rapidly from a small base, with its dynamic markets ETF attracting majority of the new funds.
Schroders’ real return managed fund product grew its FUM by 61%.
K2 asset management saw a decline in FUM for its two managed funds.
Aurora had negative FUM growth for its managed fund focusing on dividends.
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