Australian exchange-traded funds (ETFs) trounced unlisted counterparts for net inflows during 2023 in a banner year for the sector, according to new data from Betashares.
The Betashares report shows the Australian ETF market clocked up solid, if not spectacular, net inflows of A$15 billion for the 12 months to the end of December compared to net outflows of almost A$37 billion for unlisted funds “marking the worst year on record” for the traditional unit trust market.
ETF net flows have outpaced unlisted Australian funds since 2017 based on Morningstar and Betashares data.
“Most strikingly of all, looking across a longer period – since the launch of the Australian ETF industry in 2001, cumulative net flows in the Australian unlisted managed funds industry are now negative,” Betashares chief commercial officer, Ilan Israelstam, says in the report. “This clear investor preference for ETFs, plus the increasing ‘conversion’ activity we’re seeing of unlisted managed funds into Active ETFs, represents a significant ‘changing of the guard’ in the Australian asset management industry.”
But while the ASX- and CBOE-listed ETF market hit an all-time high of A$177.5 billion by the end of 2023, the figure represents just 5 per cent of the total Australian managed funds sector. Data from the Financial Services Council (Australia) put the country’s managed funds industry at almost A$3.5 trillion as at the middle of last year.
Israelstam says the Australian ETF industry is poised for further growth this year on the back of “increased investor adoption and inflows combined with positive markets”.
“As such, we forecast total industry FuM at end 2024 to exceed $200B and could reach as high as $220B depending on market conditions,” he says.
The number of Australian ETFs reached 367 last year amid a “record” splurge of 56 fund launches and a net gain of 48 listings as eight products folded during the period.
“In what is certainly an accelerating trend, a large proportion of the new launches in 2023 were Active ETFs (46% or 26 funds), with the majority of these launches being via the creation of traded classes of existing unlisted funds…,” Israelstam says.
Last year also saw fixed income products top the Australian ETF pop charts for the first time with net flows of more than A$5.3 billion followed by Australian equities (A$5.2 billion) and global equities (almost A$3 billion).
Cash ETFs also attracted A$1 billion plus in 2023, rising two places up the asset class flow rankings year-on-year.
Israelstam says the defensive stance of investors will likely “change in 2024 as the rate environment changes, and we would fully expect investors to adopt more meaningfully growth oriented exposures typically found in global equities ETFs”.
Betashares currently has more than A$33 billion in funds under management across its range of almost 100 products in Australia and NZ.
Last year the Australian manager launched a range of six unlisted portfolio investment entity (PIE) funds in NZ that feed into underlying ETFs. The firm also hired former Smartshares chief, Hugh Stevens, as executive director for the NZ operation.
As at the end of December, Smartshares reported about $7.4 billion in its suite of 40 ETF products, of which almost $5 billion is in-house money sourced from the related SuperLife KiwiSaver and employer master trust schemes.