ETFs to double in two years

Australia’s exchange-traded fund (ETF) market looks set to double in size by the end of 2013, with up to 80 funds, at a value of $10 billion, listed on the stock exchange by that time, according to BetaShares.

Drew Corbett, head of investment strategy and distribution, said since July 2004 assets in ETFs have grown approximately 35 per cent each year, from $1 billion to over $5 billion across 54 products.

However, he added that the bulk of the asset growth has come in the last two years as product proliferation has accelerated.

Since 2009 the number of products has increased by approximately 160 per cent, which has driven assets under management to increase by over 200 per cent.

“Product choice has been the major factor that has driven market growth in more developed ETF markets and Australia is starting to exhibit the same signals,” Corbett said.

Corbett said the new products that would soon be listed included further currency, sector, strategy and style-based ETFs, as well as other asset classes such as fixed interest.

There will also be an introduction of specialist trading ETFs, such as short and leveraged products, he said.

But Corbett warned that as more products are introduced, especially where different products track the same index, investors will need to look beyond comparisons of management expense ratios to see the full cost of ETFs.

Corbett said the best way of evaluating all expenses associated with ETFs was to add the management expense ratio, tracking error and bid/ask spread to give a total cost analysis.

“As competing ETFs promising the same index outcomes grow, investors should do their due diligence on which ETF will deliver superior after-cost returns,” he said.