Australian ETF Market Cross $200 Billion Mark Over Past Year

The Australian Exchange Traded Fund (ETF) market grew 37.3% over the past year to $206.2 billion across 380 products, which was driven by over $21.4 billion in net inflows, positive market movements, and numerous unlisted active funds converting into active ETFs.

The latest research from Global X Australia entitled “Australian ETF Landscape,” a comprehensive overview of the country’s exchange-traded products for the first half of 2024, showed that this was the first time the Australian ETF market has reached $200 billion for the first time.

Marc Jocum, Product and Investment Strategist at Global X ETFs Australia, said that it took nearly 20 years to reach the initial $100 billion, while the next $100 billion was achieved in just over three years. This exponential growth encapsulates Australian investors’ keen interest in using ETFs for their portfolios due to their low cost, simplicity, liquidity and tax efficiency, he said.

The year-to-date net flows for 2024 mark the strongest start ever for the Australian ETF market at $10.8 billion, potentially on track to surpass the calendar year record of $23.6 billion set in 2021 if the strong momentum continued, he said.

While bond ETFs were one of the most popular asset classes in 2023 (capturing 37% of the yearly net flows), investor positioning has changed to “risk-on” in 2024. Global shares have been the most popular asset class among Australian investors this year, with around $6 billion allocated to this category so far in 2024, representing 55% of the total market net flows.

“The Australian ETF market is growing at a faster rate than the US (albeit from lower base) and has quadrupled its share in the Australian funds market over the past six years. However, the market penetration is still in its infancy, with ETFs accounting for just under 5% of the total Australian funds market,” he said.

Global X expects traditional managed funds to continue to be at risk of losing their assets over the coming decade to lower-cost vehicles like ETFs. If the Australian ETF growth rate continues at the same historical trajectory, the industry may hit $1 trillion dollars by 2030.

More Active ETFs Entering Market

Over the past year, there have been 70 new product launches. Over half the new ETFs entering the market have been active ETFs, with a trend towards ETF conversions and launching a separate share class of existing funds.

While active ETFs have accounted for the bulk of new launches and make up nearly half of the industry’s total fee revenue, they only represent one-fifth of the total Australian ETF market and have seen consistent outflows over the past couple of years and 75% of ETF net flows are being directed towards products charging 0.25% or less per year in fees, while funds charging over 1% are being shunned.

“This trend highlights the cost-conscious nature of investors, who increasingly and seemingly prefer lower-cost investment options to simplify their investments and get asset class exposure at a cheaper fee tier,” he explained.

According to him, global shares have been the most popular asset class among Australian investors this year, with around $6 billion allocated to this category so far in 2024, representing 55% of the total market net flows.

Future Trends

Looking forward, Global X predicts three main trends that will unfold throughout the second half of 2024 include AI momentum, regional pockets of interest and the return of fixed income.

On the first trend, the fund manager said investors will continue to capitalise on the AI theme via ETFs, with opportunities across technology, semiconductors, infrastructure, and renewable energy in data centres.

Regarding regional pockets, Global X predicted European ETFs could attract more interest than the US ETFs due to attractive valuations and similar sales growth profiles. It also tipped that India could overtake China as the main emerging market in investor portfolios.

Lastly, the fund manager said despite central banks cutting rates, the Reserve Bank may keep rates high due to persistent inflation. This makes fixed income securities with higher yields attractive, especially as share market dividends decline, the research said.