The funds boosting record inflows for ETFs

The Australian exchange-traded fund (ETF) industry ended 2023 with $177.5 billion in funds under management (FUM), reporting growth of $43.7 billion during the year, according to Betashares.

The ETF provider’s annual report said two-thirds of the FUM came from market appreciation, with the remainder deriving from investor inflows and unlisted fund conversion activity. 

Overall inflows were $15 billion during the year, a 12 per cent increase, with Betashares stating its own inflows were $5.6 billion.

Looking via asset class, fixed income ETFs saw the most inflows with $5.3 billion compared to $3.6 billion in 2022. Betashares said this is the first time that fixed income took the top spot since it started conducting its annual reports.

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Popular fixed income funds included inflows of $770 million into VanEck Australian Subordinated Debt ETF, some $538 million into Global X US Treasury Bond (Currency Hedged) ETF, and Vanguard Global Aggregate Bond Index (Hedged) which gained $526 million. 

Australian equities were a close second with $5.2 billion in inflows, which included the Vanguard Australian Shares Index ETF that saw the highest inflows of any ETF in Australia at $1.5 billion during the year, followed by the Betashares Australia 200 ETF which gained $1 billion.

Not only did the Vanguard fund see the highest annual inflows, it is also the largest ETF with a $14.3 billion market cap.

International equities saw a muted year with just $2.9 billion, down from $3.3 billion in the previous year. However, Betashares said a change in the interest environment this year could mean global equities come back into favour as investors seek growth-orientated exposure.

2023 was also the biggest year for fund launches with 56 new ETFs – the firm noted “a large proportion” (46 per cent) of these were active ETFs that were created via the conversion of existing unlisted funds. This brought the number of active ETFs in the market to 94, representing $35 billion in FUM.

Chief commercial officer, Ilan Israelstam, said he underestimated the optimism of investors and market conditions towards ETFs during the year. 

“I was correct regarding positive inflows, but I did not predict that ultimately market conditions would be nearly as positive as they were, and thus underestimated by quite some margin, total industry size. 

“In terms of 2024, we believe that the industry will continue to benefit from increased investor adoption and inflows, combined with positive markets. As such, we forecast industry FUM at the end of 2024 to exceed $200 billion and could reach as high as $220 billion depending on market conditions.”