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Australia’s exchange-traded funds market is on track to become bigger than ever by the end of the year, after a powerful sharemarket rebound in October fuelled a record month of growth.
The market cap of the country’s ETF industry surged 5.9 per cent last month, jumping by $7.3 billion to $131.7 billion, according to recent analysis by BetaShares. It was the biggest increase in dollar terms on record, and left it about $5 billion short of its all-time high of $136.9 billion last December.
Crucially, most of the dollar gain came from a rally in Australian stocks, a move that’s extended into November -- meaning another big surge in market cap is likely already well underway.
Australia’s exchange-traded funds market is now worth $131.7 billion.
A new record size for the industry would be the culmination of gathering trends in Australia, where investors are increasingly turning to the low-cost, often passive vehicles. It’s a snapshot of a global movement: PwC forecast the worldwide ETF market could top $US20 trillion ($30 trillion) by 2026.
“Two decades ago if you went into an equivalent managed fund, it would be a million dollars and you’re looking at a fee of 34 basis points, versus an ETF now of 10 basis points,” said Enid Lal, head of superannuation and partnerships at Stockspot. “That’s driven everyday Australians to go, ‘well hang on, I can be in the investment industry’.”
Australia’s financial services sector has faced a reckoning in recent years. A 2018 inquiry found the industry put the pursuit of profits ahead of customers’ interests. Lal, who previously spent almost two decades at Vanguard Group, said the outcomes of that inquiry had boosted the popularity of ETFs.
‘Everyone knows the size and the magnitude of the Australian superannuation market on a global scale is massive. There’s a big opportunity there for all asset managers, but I think ETF issuers in particular have a big opportunity to try and work with those clients more closely.’
Global X ETF Chief Executive Officer Evan Metcalf
The largest ETF issuer in Australia is Vanguard, which has $40.1 billion under management and 30.5 per cent of the market’s share.
Exchange-traded funds have “such a basic role to play in opening up access to diversify funds for most investors, that it’s going to continue to grow,” Vanguard’s superannuation director and financial services industry veteran Jeremy Duffield said at a Bloomberg Intelligence event in Melbourne. “And I have no doubt about that.”