SMSFundamentals | Jan 16 2020
SMSFundamentals is an ongoing feature series dedicated to providing SMSF trustees with valuable news, investment ideas and services, in line with SMSF requirements and obligations.
For an introduction and story archive please visit FNArena's SMSFundamentals website.
Record Year For ETFs
Investors are increasingly using Exchange Traded Funds to build diverse portfolios across asset classes and the industry had a big year in 2019.
-Annual net ETF inflows the highest on record
-Substantial increase in investment in global sector products
-More than 50% of launches in 2020 expected to be active ETFs
By Eva Brocklehurst
Australia's exchange traded funds (ETF) had a big year in 2019, adding $21bn and reaching an all-time high of $61.8bn in funds under management (FUM). This increase in the industry's size was by far the highest annual change on record.
The statistics from BetaShares research revealed a year where, while asset appreciation played its part, net inflows contributed around 60% of the industry growth.
This occurred after 2018 was hampered by declining asset prices. Annual net inflows were also the highest on record, reflecting the strength witnessed globally across the ETF industry.
Moreover, for the first time fixed income products ranked number one in net inflows, mirroring trends in the global industry. The five top products by inflows were in cash and fixed income.
BetaShares analyst Ilan Israelsam had suspected at the end of 2018 this would be the case. He notes flows of over $3bn were spread across three different categories, illustrating how investors are using ETFs to build a diversified portfolio across asset classes.
In an unpredictable and low interest rate environment BetaShares CEO, Alex Vynokur, agrees many investors are searching for an exposure that offers defensive benefits and diversification.
There was also a noticeable and substantial increase in investment in global sector products in 2019, in particular global infrastructure exposures. The largest outflow by category was US dollar currency exposure, which was sold off as investors took profits.
Outlook
Vynokur expects inflows to remain strong but does not consider such aggressive growth will be repeated in 2020. In 2020, international equities are expected to return to the top of the table, given the current yield environment and investor expectations for reasonable overall returns.
In 2019 flows by ETF manager remained concentrated, with the top three, Vanguard, BetaShares and iShares receiving 80% of the combined flow. There was a noticeable slowdown in new products compared with previous years but Israelsam was not surprised, given the increasing maturity of the industry.
In 2019, 24 funds were launched and there was only one closure, being VanEck Vectors, which was re-purposed as an Australian shares fund in the middle of the year.
Meanwhile, the breakdown of inflows between passive and active products was in line with the recent past. Passive products accounted for 89% of inflow and vanilla index-tracking product was the dominant category, at 79% of the total.
Active ETFs
Most of the new funds that were launched in 2019 were active ETFs. Although the share remains relatively modest, active ETFs are expected to take an increased share of flows in the next few years.
Israelsam forecasts more than 50% of launches in 2020 will be active ETFs, particularly as ASIC (Australian Securities And Investments Commission) has lifted its stop on the launch of non-transparent active ETFs.
SMSFundamentals is an ongoing feature series dedicated to providing SMSF trustees with valuable news, investment ideas and services, in line with SMSF requirements and obligations.
For an introduction and story archive please visit FNArena's SMSFundamentals website.
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