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Aussies sink more into passive funds than active

Emma Rapaport  |  22 Jun 2021Text size  Decrease  Increase  |  
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The covid-19 pandemic transformed the way we live. Travel bans, citywide lockdowns and social distancing have reshaped how we shop, where we work, how (and if) we travel. New data from Morningstar shows it also changed the way we invest.

Over the past year, Australian investors shunned actively managed investments and chased passive vehicles, marking one of the biggest shifts in asset flows over the past decade.

In the year to 31 March 2021, Australians poured $24.5 billion into passively managed exchange-traded and managed funds, while actively managed equivalents shed -$6.7 billion.

Passive flows also demonstrated their resilience during the height of the pandemic, increasing by $15.5 billion in the first three quarters of 2020, while active flows dropped by -$32 billion. It was only in the fourth quarter of 2020 when active funds regained their ground.

Flows to active funds suffered during the height of the pandemic while passive flows soared

Quarterly Flow ($ Billion). Data as of 31/03/2021

Flows to active funds suffered during the height of the pandemic while passive funds soared

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Source: Morningstar

Passively managed funds track indexes such as the ASX 200 or the S&P 500 in the US and are typically lower cost than their active, stock-picking counterparts. Many active managers claimed that 2020 would be their moment to shine with volatility returning to the market. However, performance was mixed. Managers provided good downside protection in the swift market crash, but many missed out on the ensuing bull market, including global equity favourites Magellan and Platinum.

Long way to go

Predictions of net asset parity are still premature. Today, the bulk of the assets are actively managed, with only $225.1 billion or 13 per cent of total assets invested in passive vehicles.

Total assets under management in Australia now sit at over $1.7 trillion, up from $1.3 trillion, the same time last year. Assets have steadily increased from their covid-19 lows of March 2020, when assets fell by more than $178.8 billion over a single quarter.

The relative size of passive assets is small compared with active assets

Quarterly Net Assets ($ Billion). Data as of 31/03/2021

The relative size of passive assets is small compared with active assets

Source: Morningstar Direct

Who are the passive winners?

The bulk of passive assets remain with unlisted funds ($147 billion), but listed funds are gaining ground ($77 billion).

In 2020, the passive exchange-traded products saw inflows of $15 billion, while passive funds collected just $9.28 billion.

Three listed providers—Vanguard, iShares and BetaShares—have sewn up passive listed market. Collectively, the three firms manage 75 per cent of assets in passive ETFs.

BetaShares is a standout, increasing its market share from 11 per cent to 14 per cent over the past year thanks to interest in its Australian Tech ETF (ATECH) and Asia Tech Tigers ETF (ASIA).

Australian ETP assets increased by more than $7 billion over the March quarter to $101.5

Quarterly ETP Assets ($ Billion). Data as of 31/03/2021

Australian ETP assets increased by more than $7 billion over the March quarter to $101.5

Source: Morningstar Direct

Magellan's Global Active ETF (MGOC) leads the ETP pack with $13.6 billion in assets thanks to a complex restructure in November 2020, but the remaining top 10 largest funds are all passively managed. Vanguard Australian Shares ETF (VAS) has $7,762 million in assets, followed by SPDR S&P/ASX 200 ETF with $4,382 million and iShares Core S&P/ASX 200 ETF (IOZ) with $4,219 million.

10 largest Australian ETPs

Data as of 31/03/2021

10 largest Australian ETPs

Source: Morningstar Direct

 

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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