Christine St Anne: Today I'm joined by Morningstar's Alex Prineas to give us the latest update on the ETF or Exchange Traded Fund industry.
Alex Prineas: Thank you.
St Anne: Alex, so what were the best performing ETFs for August?
Prineas: Sure, the best performing exchange traded products were mostly specialized commodity products in August. So, you had things like ETFS, Brent, crude oil, that was up more than 12% on the back of political tensions in the Middle East and a hurricane in the U.S. You also had ETFS Physical Silver, that was up more than 10%. In fact the precious metals products did quite well over the months of the top five performers. Three of them were precious metals related, so you had the Silver ETF that I just mentioned and then ETFS Platinum and Palladium products were also up more than 7% each.
August highlighted that commodities don’t always move in unison especially in the short-term. A lot of the worst-performing ETFs were commodity related, but more so focused on industrial commodities. In any given month you'll often see commodity ETFs at the top or bottom of the performance tables because of their volatility. So that makes them quite popular with traders, but we tend to focus – well, Morningstar focuses its research more so on the diversified broad-based ETFs that are more likely to form the building blocks in an investors' portfolio. So, things like State Street's ASX 200 ETF, which is a diversified portfolio of Australian shares or Vanguard's world ex-U.S. ETF.
St Anne: Alex, high dividend ETFs did quite well? Was that a reflection of investors demand for yield?
Prineas: Yeah, high dividend ETFs did deliver solid returns in August. Most of them were up 2% or more after more than 5% rise in the month of July. They have flattened out in September though, but what you've got to remember with high dividend ETFs is, the name doesn't tell you everything.
So if you take, for example, the iShares high dividend ETF, that was actually much flatter over those three months of July, August and September. The iShares product has a bit more of mid-cap flavor to it. So the large cap high-yield stocks have actually been sort after recently because of investors want to put their money somewhere. They want to get a decent yield, but they're also concerned about the safety of that dividend.
So it's been the large-caps that have done well whereas the mid-caps, which are more volatile have been a little more stagnant. So, you've seen that differentiation between the different type of high dividend ETFs.
St Anne: ETFs have continued to grow. They grew 4% in July and then another 2% in August. Alex is this because of new product launches or investor demand?
Prineas: Yeah. We have seen a proliferation of exchange traded products this year. The volume of ETF assets is more often than not is driven by market movements rather than investors actually rushing into the ETF market.
However, if you look over multiple months, the new products have made an impact. It's not across the board, some of the new ETF products are still tiny, but some of them have been quite successful. So, if you look at say the BetaShares high interest cash ETF, that was I think launched in March 2012, but by the end of September, it already gathered $60 million in assets. So, still small, but it's growing at quite a quick rate.
St Anne: Alex, finally in 2012, we've seen 22 new products come into the market, do you expect more ETFs to come for the remaining year?
Prineas: Yeah. The number of launches has slowed down a bit in the last month or so and fixed income was a major gap in the ETF market earlier this year, but then when the ASX allowed fixed income ETFs, all the major providers wanted to be in that space. So, you saw a lot of launches from iShares, Vanguard, Russell, State Street and you also saw that BetaShares cash ETF that I mentioned before.
We also saw 10 new commodity exchange traded products from ETFS, so that added to the numbers. I wouldn't expect as many ETFs or exchange traded products going into the closing period of 2012. So we just aren't seeing the demand from investors and advisors. But even if there are a lot of launches, I don't think there is any reason for investors to rush in.
St Anne: Alex, thanks so much for your insights today.
Prineas: Thank you, Christine.