Each ETF sector saw double digit percentage growth in FUM over the last year. The largest inﬂows coming into global share ETFs, Australian share ETFs and ﬁxed income and cash ETFs.
Over 5 years the average global share ETF returned 13%, compared to a 8% return from the average Australian share ETF. The underperformance of the local market since 2010 has led many Australian investors to look at adding global ETFs into their portfolios.
Investors continued to diversify their portfolios into ﬁxed income ETFs, as worldwide volatility in share markets remained a theme with multiple unexpected political events occurring in 2016 including Brexit and the US Presidential Election. Notwithstanding, most bond ETFs had a lacklustre year of performance compared to the recent past, returning 1% to 3% over the year compared to much larger share market returns.
Australian Shares (Broad Market)
This group of ETFs track broad Australian share market indices such as the S&P/ASX300, including small and mid-cap indices.
Australian share ETFs added $1,514 million of FUM for the year with 31% of that money ﬁnding its way into either SPDR's STW and 24% into Vanguard's VAS. Together with iShares' IOZ they accounted for 69% of all inﬂows, as investors continued to gravitate towards the largest ETFs with high trading volumes and low fees.
Australian Shares (Sectors)
This group of ETFs track the movements of various sectors of the Australian share market. At this stage there are sector ETFs covering the resources, ﬁnancials and property sectors.
Performance between sector ETFs varied greatly over the year with property ETFs returning 6-9% while ﬁnancials, resources and mining ETFs had exceptional returns of 26% to 40%. The average total return of 25% is the highest among all ETF groupings.
Australian Shares (Strategies)
These ETFs only include some Australian stocks rather than the entire index. In Strategy based ETFs, stocks are selected according to certain rules-based factors like dividend yield or research rating.
This group also includes Hedge Funds - which have gearing and Managed Funds - which include 'active' funds management and typically have higher fees. Some of the strategy ETFs also seek to address concentration issues within the broad market indices by limiting sector and stock exposure limits. For instance Vanguard's VHY ETF restricts any one industry to 40% and one company to 10% of the index.
High yield and dividend themed ETFs captured most of the new ﬂows into this group again as the theme remains very popular in Australia. BetaShares' HVST managed fund more than doubled its FUM by receiving almost $270 million in new funds. The Vanguard (VHY) is still the largest ETF by far with around 28% of all FUM in this category.
Global Shares (Broad Market)
This group of ETFs track global markets and share indices including the S&P500 and various region and country markets including Europe, Asia, Japan, Hong Kong, China, Taiwan and South Korea.
It maintained its position as the largest ETF group and saw 9 new ETFs created during the year. This group had slightly lower returns compared to Australian shares for the ﬁrst time in many years.
The majority of new inﬂows were captured by broad US shares and global funds as investors chased the large, highly-liquid global indices with well-known constituent businesses. Global dividend yields still remain lower on average (2%) compared to Australian shares (4%).
Global Shares (Sectors)
This small group includes ETFs that capture the performance of global stocks in speciﬁc market sectors.
FUM grew by 51% over the year and it had the highest number of new ETFs. There are 11 new unique options for Australian investors to gain access to speciﬁc global market sectors, particularly those that are under-represented within the Australian indices.
Fixed Income & Cash
These ETFs oﬀer exposure to ﬁxed income and cash from Australia and overseas to investors.
A rally in the stock market has resulted in the rapid growth of this sector slowing as investors conﬁdence returned to growth focused ETFs. However, ﬁxed income still remained popular as it provides an important portfolio diversiﬁer, especially for self managed super funds, and retained its place as the third largest sector by FUM.
The sector is still dominated by the BetaShares Australian High Interest Cash ETF (AAA), the only cash ETF, which invests in short-term deposits and returned 2% for the year. Vanguard's ﬁxed interest ETF (VAF) grew by $250 million. Its FUM grew to just over 30% of the group total, whilst BetaShares' AAA has slipped to just under 40% in the past year. Vanguard also launched one new ETF tracking an Australian corporate ﬁxed interest index (VACF).
This group's ETFs are all focused on the natural resources and commodity sectors.
This ETF group has experienced a signiﬁcant recovery after a period of negative performance. ETF Securities held its dominant position with 70% of FUM and the rest being almost equally spread between Perth Mint Gold and BetaShares.