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Australia's ETF market: A year in review

Arian Neiron  |  05 Feb 2014Text size  Decrease  Increase  |  
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Arian Neiron is managing director of Market Vectors Australia.


Last year was an exceptional year for the exchange-traded products (ETPs) market in Australia. A strong performance of share markets resulted in solid inflows into ETPs and helped to drive market capitalisation of the sector to over $10 billion.

As at 31 December 2013, market capitalisation of the 94 ETPs listed on the Australian Securities Exchange (ASX) had jumped to over $10 billion - a 55 per cent increase from 12 months earlier, according to ASX data.

Much of the buying was done by self-managed superannuation funds, attracted to the low-cost and transparent structure of exchange-traded funds (ETFs) and the easy access they provide to diverse investments.

In terms of attractive asset classes for Australian ETF investors, much of the money in 2013 poured into international sector and broad-based ETFs, as well as strategy-based ETFs focused on Australian shares.

Flows into ASX-listed international ETFs, including broad-based and sector funds, surged to over $1 billion from February to the end of December 2013, easily beating flows into any other ETF asset class listed on the ASX.

Assets in international ETFs accounted for 22 per cent of the ETFs listed on the ASX in January 2013, increasing to 33 per cent of all ETF assets by 31 December 2013.

Attracting the biggest share of flows in 2013 was ASX-listed ETPs with exposure to US equities, highlighting the lure of the booming US stock market where US equities have outperformed the Australian share market.

While flows were directed to the US, so too was investment into other developed markets, including European markets, which rebounded in 2013. According to the Blackrock ETP Landscape December 2013 report, global ETP flows during the month reached $24.7 billion. Globally, flows amounted to US$235.5 billion in 2013.

It is evident that Australian investors followed the global trend towards investing in developed equity markets. The overall strength of the Australian dollar, while diminished lately, made it affordable to do so.

Aside from the trend towards international ETF investment and diversification, inflows were also directed towards Australian equity strategy-based ETFs in 2013.

Australian strategy-based ETFs, including high-yield or high-dividend funds, accounted for approximately 11 per cent of ASX-listed ETF assets in December, 2013 - a rise from 9 per cent in January 2013. Flows into this segment were $386 million as at 31 December 2013.

At the same time, some ETFs listed on the ASX experienced outflows in 2013, including commodity ETFs, which represented just 5.8 per cent of ETF assets as at December 2013, down from 13 per cent of ETF assets in January 2013, resulting from a shift back into equity ETFs, in line with rising share markets.

Gold ETFs experienced significant outflows as we saw gold bullion down 3.8 per cent in December to close the year at US$1,205.65 per ounce.

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