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5 charts on Australian ETFs in 2021

Emma Rapaport  |  08 Feb 2022Text size  Decrease  Increase  |  
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US stock markets put an exclamation point at the end of a remarkable year. The iShares S&P 500 ETF ended the year 36% higher than where it began. Investors jumped on the bandwagon, helping make international equity ETFs the most popular category for 2021. When the books closed on 2021, Australian exchange-traded products (ETPs) held just over $134 billion of investors’ money.

Here, we will take a closer look at where investors put their money, and which segments of the market outperformed in 2021, all through the lens of ETPs.

Industry balloons

Australia's ETP industry extended it's post-pandemic growth spurt in 2021, expanding by almost 45% to reach an all-time high of $134 billion by December. This is up from $95 billion in total net assets at the start of the year.

Passive funds continued to receive the lion share of inflows, despite the large number of new actively managed products launched (more on that later).

International equity dominates

Investors showed a strong preference for using ETFs to gain global equity exposure, making 'international equity' the most popular category for inflows every month in 2021 (to November). Within the category, Vanguard's MSCI Index International Shares ETF (VGS) was the most popular, followed by the BetaShares Global Sustainability Leaders ETF (ETHI) and the BetaShares NASDAQ 100 ETF (NDQ).

'Cash' was the only category to experience regular outflows throughout the year as investors exited the iShares Core Cash ETF. Australia's cash ETF sector dropped from five funds to two as issuers weighed up the benefits of keeping these products on their books. Two cash ETFs shuttered in May and June last year – the UBS IQ Cash ETF and Pinnacle's zero-fee iShares Dynamic Cash ETF. Both had assets of less than $5 million at the time. The BetaShares Australian High-Interest Cash ETF (AAA) is the largest fund left by a significant margin, commanding over 80% of the market.

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Getting active

If 2020 was the year of the thematic ETF, 2021 was the year active ETFs stormed to the fore. These funds reflect the portfolio of an active stock or bond picker, rather than track an index. Active ETFs are bringing a wider diversity of managers, strategies and asset classes into the industry, challenging the passive roots that attracted many investors in the first place. Several listed investment companies also relisted as active ETFs, including Monash and Magellan, due to investor pressure to reduce long-term discounts to their NAVs.

On the passive side, issuers BetaShares, ETF Securities and VanEck continued to list thematic and sector-based funds over the year targeting themes like 'climate change', 'electric vehicles' and cloud computing. The three providers jockeyed to list the first cryptocurrency-tracking ETF. ASIC gave its approval in late 2021 and funds are expected to appear in 2022. In the meantime, BetaShares launched an ETF tracking the cryptocurrency ecosystem. The BetaShares Crypto Innovators ETF grew to over $122 million in its first two months of operation while performance dove -30%.

iShares/BlackRock made its first foray into sustainable ETFs, launching an Australian ESG leaders ETF and changing the benchmarks of two of its existing global equity ETFs to ESG Leaders indexes. The funds now offer a broad-market index strategy with a focus on responsible investing in companies with superior environmental, social, and governance practices. The move was welcomed by many but took some unitholders by surprise.

Oil outperforms

From zero to hero, the BetaShares Crude Oil ETF Currency Hedged (Synth) delivered an incredible 57% return in 2021 after a devastating -70% fall in 2020. Investors benefited from a strong rebound in oil prices as economies emerged from lockdowns and oil cartel OPEC agreed to major cuts in crude oil production. Also coming back into favour, value-factor funds like the actively managed Vanguard Global Value Equity Active ETF delivered top-ranking returns thanks to strong performance for its economically sensitive picks in energy, commodities and finance. The value rally for stocks started in late 2020 when market participants started to price in a stronger than expected economic recovery thanks to vaccine rollouts and fiscal stimulus.

It paid to be sustainable in 2021. Companies that scored highest on environmental, social, and governance metrics saw blockbuster returns with help from stocks such as Nvidia NVDA, Microsoft MSFT, and TSLA TSLA. The iShares Core MSCI World Ex-Australia ESG Leaders ETF (IWLD) returned 38% in 2021, beating the broader MSCI World ex-Australia benchmark by 8 percentage points.

Large-cap US equity ETFs demonstrated again why they're a difficult hurdle for active managers to beat. Ultra-low fee iShares S&P 500 ETF (IVV) returned 36% to investors in 2021 and has delivered 10-year annualised returns of 20%. Representing about 80% of the total US market capitalisation, the S&P 500 index is seen as an encyclopaedic representation of US equities from all sectors of the economy.

Funds exposed to the Chinese stock market fell into deep negative territory. Coronavirus-related lockdowns and Beijing's attempts to reign in several sectors including technology, education and property saw stocks tumble. Geared and hedged funds straddle both ends of the list demonstrating their inherent riskiness.

Since 2020, many of the top-performing thematic ETFs including ETFS Battery Tech & Lithium ETF (ACDC), Betashare Global Robotics And Artificial Intelligence ETF (RBTZ), BetaShares Global Cybersecurity ETF (HACK) and ETFS ROBO Global Robotics and Automation ETF (ROBO) have fallen off the top 10 list.

Vanguard rules the roost

Despite the ever-expanding menu of ETFs, investors' tastes are traditional. The strongest inflows for the year were recorded by a trio of diversified Vanguard products—Vanguard Australian Shares ETF (VAS), Vanguard MSCI Index International Shares ETF (VGS) Vanguard Diversified High Growth Index ETF (VDHG) – as well as the BetaShares' NASDAQ 100 ETF (NDQ).

Four funds—iShares Core Cash ETF (BILL), iShares S&P 500 AUD Hedged ETF (IHVV), Vanguard Australian Fixed Interest ETF (VAF) and SelfWealth SMSF Leaders ETF (SELF) all recorded outflows over $100 million. iShares IHVV plummeted in value at the end of the fiscal year owning to unusually large distributions, leaving investors with unexpectedly large capital gains.

Vanguard continues to be the market leader drawing over 30% of the net flows into ETFs over 2021. Magellan was the only asset manager in the top 5 issuers by funds under management to suffer a major setback in terms of market share in 2021.

is the editorial manager for Morningstar Australia. Connect with Emma on Twitter @rap_reports. You can email Morningstar's editorial team editorialAU[at]morningstar[dot]com

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