Local investors shy away from fixed income ETFs

Growth in the Australian exchange traded fund (ETF) market continues to outpace the global ETF landscape, yet while global ETF investors continue to pour money into fixed income, local investors seem reluctant to invest in this ETF asset class. 

According to the State Street Global Advisors’ global ETF report, Australian investors poured $330 million into ETFs in May with assets under management growing by 11 per cent compared to 4 per cent globally for the year. 

Self-directed investor and adviser interest in developed international equities and Australian equities continue to drive this growth, said State Street head of ETFs Amanda Skelly. 

The report revealed global ETF investors have put over US$40 billion into fixed income ETFs, which differs to the preferences of most local ETF investors, where interest in bonds is still in its infancy. 

Locally, fixed income inflows were very modest as Australian investors prefer cash within the defensive asset classes, and continue to search for income through dividend focused Australian equity ETFs and Australian REITs, the report said.  

“Australian based investors are starting to recognise the benefits bonds offer outside of just income, but continued investor education is vital to seeing demand increase,” Skelly said. 

Skelly noted that global ETF investors utilise fixed income investments for several reasons including income, duration and, to reduce overall portfolio volatility employing broad based bonds for diversification benefits.