ETF growth being driven by adviser mind shift
The growth of exchange traded funds (ETFs) is being driven by financial advisers seeking to demonstrate their value to clients and offering ETFs as an inherent part of an investment portfolio.
BlackRock director Jonathan Howie said ETFs were being applied at a thematic level in portfolios and had shifted away from being seen as just a core exposure instrument.
Howie said ETFs are being used "as a rapid access tool for dynamic asset allocation; blended together with stocks, other ETFs and with active funds to deliver a robust portfolio outcome for clients and to reinforce the advisers' value proposition".
"A benefit of including ETFs in a wider portfolio today is that advisers are able to truly express a broader range of views for their clients; for example, in looking at particular segments of a given market or the globe, all the while offering greater flexibility and often lower cost."
Howie said this interest has resulted in $1.4 billion of new inflows into the Australian ETF sector for 2013 year to date, higher than any previous full calendar year.
"As an industry, the main theme based on ETF net flows this year has been international equities, which equated for 57 per cent of new money; and also Aussie equity income which saw 24 per cent of new money flows," Howie said.
Howie's comments about the growth of exchange traded funds (ETF) products has been reflected in the statistics released by Market Vectors Australia which show that ETFs, as measured by market capitalisation, have grown by 61 per cent in the past 12 months.
Average monthly trades have also increased by 35 per cent for the same period and the ETF market had reached $8.8 billion.
Market Vectors Australia managing director Arian Neiron said that increased inflows into ETFs were a reflection of greater confidence in equity markets and that strong flows would continue into developed equity markets for the rest of 2013 and into 2014.
"We think it's likely that strong growth of Australia's ETF market will continue given rising demand from direct investors and self-managed superannuation funds who are using ETFs to broaden their portfolios to include assets which they couldn't previously access easily," Neiron said.
"We are also seeing a significant increase in the use of ETFs by financial advisors as a result of the Future of Financial Advice reforms (FOFA) effective from 1 July this year, and from institutional investors who are using ETFs for cash equalisation or to allow a smooth transition of assets from an outgoing manager to a replacement manager."
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