Australian market for passive strategies lags behind other mature market

Although Australian investors are demonstrating an ongoing preference for passive strategies  compared to larger and more mature markets, such as Canada and the US, the Australian market sits behind in terms of net inflows and size, according to BetaShares Global ETF review.

To put it into a context, the exchange traded fund (ETF) industry in the US represented about 16 per cent of the size of the broader mutual fund industry, while in Australia ETFs account for a far smaller portion of the market and represent only 1.5 per cent.

Although the growth across the ETF industry in Australia was fast, according to BetaShares’ managing director, Alex Vynokur, the market was still in its relatively early phase as investors were only ‘scratching the surface’ when it came to ETF usage.

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“Saying ETFs can move markets makes little sense. ETFs are designed to replicate what their underlying securities do. Nothing more, nothing less,” he said.

“The cost -effectiveness, transparency and accessibility offered by ETFs makes them appealing for all investor types, whether an institutional asset allocators, a financial adviser, a high net worth individual, or a millennial who is just starting to build an investment portfolio.”

Also, the study confirmed that two key trends, the environmental, social and governance (ESG) and smart beta strategies were on the rise, with the ESG ETF assets under management (AuM) grew by 26 per cent year-on-year in the US.

On top of that, smart beta exchange-traded products recorded growth in flows of 10 per cent compared with 2017, reaching a record high of $86 billion in 2018 and flows into smart beta strategies between 2009 and 2018 saw a compounded annual growth rate of 60 per cent.

“As the popularisation and sophistication of the ETF industry and of investors around the world continue to grow, we predict the uptake of funds with differing methodologies to continue to be adopted,” Vynokur concluded.

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