Christine St Anne: The Exchange Traded Fund or the ETF market certainly had a number of changes last year. Today, I am joined by Morningstar's Tim Murphy to give us the latest insights into the ETF wrap-up for 2012. Tim, welcome.
Tim Murphy: Hi, Christine.
St. Anne: Tim, so who were the top performers for the last quarter of 2012?
Murphy: So last quarter was a – very much a risk gone quarter. Lots of equity markets fared quite well around the world and that was certainly reflected in the types of ETFs and their performance that it was achieved in the fourth quarter. So topping the pops was the iShares' China ETF and then you saw a range of other new, mostly equity-related ETFs topping the charts behind that as equity markets were right around the world rallied quite strongly.
St. Anne: What about the laggers?
Murphy: So the bottom of the list was you know a couple of the commodity ones seem to have stood out in particular. You know things like natural gas where there has been a big over supply, come on board in the US. It really took a breather in the last quarter, it's fair to say.
St. Anne: Tim, last year we had a number of fixed-income and commodity ETF products coming into the market. How did they go with investor support?
Murphy: So you know, varying levels of support. None of those new ETFs took huge amounts of assets. I think one of the fixed interest ETFs got up just up by the $50 million, but in the rest, somewhere beneath that. So we haven't seen huge investor take-up just yet. But that's also partly a cyclical as well, given there wasn't a lot of new assets flowing into many e-products of any description last year, whether there were ETFs funds are into the market. So, I think you certainly saw a lot of new products being launched last year which will lay the ground work for all sorts of future development, future demand in coming years.
St. Anne: How are the ETF market compared with managed funds?
Murphy: In terms of flows, ETFs did pretty well. So, total asset levels sort of increased about 25 per cent year-on-year. Now a good chunk of that was market movement in relation to particularly the second half of the year, equity markets in particular taking off and certainly at this stage, most of the larger ETFs in Australia are equity related. So that factored in. But you did see some nice inflows too into a handful of some of the specific equity ETFs, and then Alpha was a combination of the newer ones particularly in fixed interest as you mentioned before.
St. Anne: Tim, so does this mean that you see more investors focus on ETFs rather than managed funds?
Murphy: Well, you are not going to see a wholesale shift but certainly at the margin, you are seeing that. And that comes back to the cost factor, you know, FOFA (future of financial advice) comes informally on 1 July this year. This trend towards lower cost investing is a structural change. It's not going to go away. So in most cases, at the margin that's going to favor lower cost ETFs at the expense of higher cost managed funds. At the same time you are seeing more managed fund products come to market that are lower cost and are addressing that. So certainly those are the structural change taking place is a benefit of ETFs and should be a tailwind to it rolling forward. But you are not going to see a wholesale – everything out of managed funds into ETFs, no, at this point.
St. Anne: Tim, thanks so much for your insights today.
Murphy: Thanks Christine.