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ETFs in 2017: Top trends, new launches, winners and losers

Glenn Freeman  |  02 Feb 2018Text size  Decrease  Increase  |  
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More than $10 billion flowed into Australia's exchange-traded products sector in 2017, which grew 39 per cent to $35.4 billion over the year.

Active exchange-traded products (ETPs) were the fastest growing segment (73 per cent), albeit from a low base, alongside traditional and strategic beta ETFs.

Attracting $807 million collectively, the three dominant Australian equity ETFs were Vanguard Australian Shares (ASX: VAS), iShares Core S&P/ASX 200 (ASX: IOZ) and SPDR S&P/ASX 200 (ASX: STW). They grew by 43 per cent, 138 per cent, and 16 per cent respectively.

Among the 21 ETFs launched during the year, Alex Prineas, Morningstar's associate director of passive strategies and author of Morningstar's quarterly ETF Investor--Morningstar Premium subscribers receive the full report--singled out Magellan's launch of its Magellan Global Trust (ASX: MGG).

"Because of its size, and because its innovative listed investment trust (LIT) structure rivals active ETPs and LICs," Prineas says.

"We've regularly observed that asset managers have launched a range of investment strategies and structures on the ASX's platform. Magellan is a microcosm of this ... Our favourable view of Magellan’s investment capability led our analysts to cover MGG before the IPO, and issue a Subscribe recommendation."

He also highlighted four new Vanguard passive multi-asset ETFs--Vanguard Conservative Index (ASX: VDCO); Vanguard Balanced Index (ASX: VDBA); Vanguard Growth Index (ASX: VDGR) and Vanguard High Growth Index (ASX: VDHG).

"These four new ETFs invest in Australian and international equities (including emerging markets) and bonds, with asset allocations spanning the risk spectrum. The new ETFs are listed share classes of existing Vanguard funds that Morningstar analysts have long thought highly of," Prineas says.

The largest growth in ETFs was among two European-focused ETPs: Vanguard FTSE Europe Shares (ASX: VEQ) grew a staggering 2000 per cent (no, that isn't a typo)--though off a small base--but assets grew $134 million in 2017. ETFS Euro Stoxx 50 (ASX: ESTX) grew 1400 per cent, up $47 million.

Two declines in the space were the BetaShares US Dollar ETF--down 10 per cent--"but a big chunk of that was just the US$ decline rather than outflows".

"That was not the case for BetaShares Australian Div Harvester (ASX: HVST), which suffered the largest asset decline for the year, down $105.04 million, or nearly 28 per cent of its overall assets," says Prineas.

In addition to trends in the ETP market itself, Prineas also explained changes in Morningstar's research coverage of the space--listing the more than 10 new passive vehicles added to his team's research remit during 2017.

"Morningstar's coverage has remained at around 80 per cent of Australia's ETF markets, measured by assets," he says.

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Glenn Freeman is a senior editor at Morningstar.

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