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AUSTRALIAN EXCHANGE TRADED FUND INDUSTRY: END OF YEAR REVIEW 2021
Aided by record inflows and strong market conditions, the Australian ETF industry continued to grow rapidly, maintaining the very strong momentum of the previous two years. Read on for more details, including best performers, asset flow categories and more.
Australian ETP Market Cap: July 2001 – December 2021
Source: ASX, Chi-X, BetaShares.
- ASX Exchange Traded Product market cap: $136.9B1
- Market cap growth for year: 44%, $41.8B – largest absolute annual growth ($ terms) on record
Comment: Industry funds under management, which started 2021 at $95B, ended the year at $136.9B, an all-time high. The change in total industry size for the year was $42B which is the largest $ value change on record (previous record was $33B of growth – recorded in 2020).
1. Includes total FuM for ETFs trading on both ASX and Chi-X
- Net new money (units outstanding by % value): +$23.2B – all time highest annual flows on record (13% increase on previous annual record, $20.5B in 2020)
Comment: The growth for the year was assisted by market appreciation, which, at 45% of the year’s total growth aided the industry growth substantially. That said, flows of $23.2B were the highest on record, and a 13% increase v. 2020’s record flows of $20.5B. The growth in flows is mirrored by the rapid rise in the number of Australian ETF investors, with our recently released BetaShares/Investment Trends ETF Report noting that there are now 1.7 million Australians investing in ETFs, representing investor growth of 33% v. the year before.
- Flows by ETF manager continued to be concentrated, and significantly more so than last year, with the top 3 players (Vanguard, BetaShares and iShares) receiving 75% of the industry’s flow combined (compared to 70% for the top 3 players in 2020).
- 280 Exchange Traded Products trading on the ASX and Chi-X (vs 256 as at end 2020)
- New/closed products: 33 new products launched in the year (vs 38 in 2020), 9 products closed/matured
Comment: In terms of product launches, we saw product development activity come off slightly compared to the year before. Over the course of 2021, 33 funds were launched and ‘net product growth’ was 24 funds. Notably 40% (13 funds) of the new launches were Active ETFs with almost all being via the creation of traded classes of existing unlisted funds. We are predicting a record year of new product launches in 2022, as the industry continues to evolve and mature.
New product launches – 2021
Comment: Product development activity for year was slightly off pace compared to 2020, with 33 new products launched this year (v. 38 in 2020) and ‘net product growth’ of 24 funds. 9 products were closed. Notably 40% (13 funds) of the new launches were Active ETFs with almost all being via the creation of traded classes of existing unlisted funds.
- After the all-time record of 2020 (which included a $17B month in March 2020), trading value remained stable (-3% compared to 2020) – with $96B of value traded on the ASX (v. $99B in 2020)
Comment: We also continued to see strong trading values in the industry, after a break-out year in 2020. Trading values remained stable compared to last year, with $96B of value traded on the ASX (down slightly v. $99B in 2020).
Australian ETF industry – ASX monthly trading value
- Geared U.S Equities took the number one spot for best performance over the course of the year, with our GGUS fund returning 66%. Strong performance was also recorded in Crude Oil and Global REIT exposures1.
Analysis of inflows
|Product Style||Inflow Value||2021 (%)||2020 (%)||2019 (%)||2018 (%)|
Comment: By inflows, passive products captured the vast majority of flows with 92% share. Notably, and notwithstanding the large number of Active ETF product launches, we actually saw a larger than ever proportion of the flows into passive ETFs, with the Active ETF sector dropping its share of flows from 10% in 2020 to 8% in 20212. This illustrates that notwithstanding the high levels of product launch activity, there is still some way to go to for mainstream adoption of Active ETFs in the industry, and a continued (and rising) preference by ETF investors for passive products.
|Product Style||Inflow Value – 2021||2021 (%)||2020 (%)||2019 (%)||2018 (%)||2017 (%)|
Comment: Within the passive category vanilla index-tracking funds once again dominated over smart-beta alternatives, with a similar share of flows to 2020 (83%). In fact, as the above table illustrates, we saw more flows into Smart Beta ETFs than Active ETFs in 2021, something that has not occurred in the last 4 years.
Top 5 category inflows (by $) – 2021
Comment: In terms of category flows we saw a very similar pattern to 2020, with 2021 flows heavily dominated by equities – international equities in particular picking up the lion’s share (over 50% of total flows). Like the year before it, fixed income flows were muted, as yield pressure caused investors to eschew the asset class. However multi-asset class or diversified ETFs rose in popularity, particularly with younger investors using them as the core to their portfolio or to get started with investing.
- International equities ETFs received the highest level of flows at ~$11.8B (v. ~$8B in 2020)
- Australian Equities ETFs also had a strong year for flows, with ~$5.5B received. (v. $6.8B in 2020)
- Fixed Income ETFs received $2.9B (v. $2.4B in 2020)
- Multi-asset/diversified products received $1.7B (a dramatic increase compared to $664M in 2020)
Top sub-category inflows (by $) – 2021
|Australian Equities – Broad||$4,242,043,945|
|International Equities – Developed World||$4,220,846,894|
|International Equities – Sector||$2,461,313,829|
|International Equities – US||$2,062,542,340|
Comment: The sub-category flows mirrored those of the broad categories although it was broad Australian equity products that took out the top place. There was a notable and substantial increase in investment into global sector products in 2020, largely due to an increase in interest in technology exposures. There were essentially no outflows at a category level, with outflows limited to specific individual exposures rather than categories more generally.
In our year-end report for 2020, I wrote “we believe the industry will continue to grow strongly in 2021, and forecast total industry FuM at end 2021 to be in the range of $110B-$120B. We expect that the industry will break the $100B milestone by the end of the first quarter”. The industry did indeed break that milestone in March 2021, but my absolute forecast was smashed ($136B).
In terms of 2022, we believe the industry will continue to grow strongly, although we doubt it will be as assisted by the market as occurred in 2020. We forecast total industry FuM at end 2022 to be in the range of $180-$190B.
1. Past performance is not indicative of future performance.
2. “Passive” products defined as passive/rules-based products (i.e. rather than as legally defined by ASIC/ASX) and include products with an element of investment discretion. “Active” defined as Active ETFs