One word: BIG!
We’ll begin our posts in 2018 with a look at the year 2017 in ETF-land. And what a year it was!
The Global ETF industry recorded significant growth in 2017, receiving its highest ever level of net inflows (US$633B) – a growth rate of 18% year on year. In total the global industry ended the year at US$4.8T1.
Locally, our ETF industry followed this global trend in 2017 and broke virtually all records available. The Australian ETF industry’s funds under management continued to grow rapidly, increasing a particularly fast 40% year on year to end the year at a new record high of $36B. The industry grew FuM by $10.2B which smashed the previous record ($6.3B) set in 2015.
- ASX Exchange Traded Funds Market Cap: $36.0B – new record high!
- Market cap growth for year: +40%, +$10.2B – new record high for $ value growth
- New unit growth for year (units outstanding by number): 41%
- Net new money (units outstanding by $ value): +$7.8B – new record high for annual net flows
Comment: Flows by issuer remained relatively concentrated in 2017. The largest 3 issuers (Vanguard, iShares and BetaShares), together attracted 72% of industry’s flows.
- 226 Exchange Traded Products trading on the ASX
- New products: 31 new products launched in the year (vs. 40 in 2016), 3 products closed/matured
Comments: In a year where virtually all metrics are up, it’s rather striking that product development numbers in 2017 were lower than in 2015 and 2016. This is unsurprising in some ways as it represents an indication of the industry’s maturity. We do consider that product development will continue strongly in 2018 however.
- Trading value increased 41% compared to 2016 – record trading year for ETFs – $32B traded
- BetaShares Geared U.S. Equities Fund (hedge fund) (ASX: GGUS) and Asian equities exposures the best performing products for 2017
Comment: Geared US Equities provided investors the best returns in 2017 as the US market continued to rally strongly. GGUS has now appeared in the top 5 by performance for 2 years running. Asian and Emerging Markets equities were the next best categories in terms of performance.
Analysis of inflows
|Product Style||Inflow Value||2017 (%)||2016 (%)|
Comment: 2017 saw vanilla index tracking ETFs take significantly more flows than 2016 and was once again the dominant category. In saying that, 30% more flows (by $) went into smart beta products this year although the % of flows was significantly down (-8%) as investors sought out low-cost market cap tracking products. If global trends are anything to go by, we continue to expect the smart-beta category to continue to grow and develop as the industry matures. The $600m of inflows into Active ETFs was encouraging as it was 1.5x the $ amount recorded in 2016 (~$390m).
Top 5 category inflows (by $) – 2017
|International Equities||$ 3,218,543,150|
|Australian Equities||$ 2,639,166,266|
|Fixed Income||$ 1,144,785,846|
|Australian Listed Property||$ 230,038,981|
Comment: Strikingly the ranking of inflows into high level asset categories was exactly the same in 2017 v. 2016. The fixed income category continues to grow strongly – taking in ~$400m more than in 2016. Fixed income is another area where we expect product development to occur in a meaningful way in 2018.
Top category outflows (by $) – 2017
Comment: Very low outflows recorded by category with only Currency ETFs receiving net outflows for the year.
Top sub-category inflows (by $) – 2017
|Australian Equities – Broad||$ 1,939,124,485|
|International Equities – Developed World||$ 1,387,767,085|
|Australian Bonds||$ 911,766,007|
|International Equities – US||$ 525,175,382|
|International Equities – Sector||$ 478,437,583|
Top sub-category outflows (by $) – 2017
|Soft Commodities||($ 329,210)|
Comment: 2017 is the first time the “Australian Equities – High Yield” sub-category dropped out of Top 5, with US equities coming into the Top 5 in its place. At the sub-category level it is actually Broad Australian Equities (rather than International Equities) that ranks as #1 – perhaps unsurprising given the continued home bias displayed by Australian investors.
We believe the industry will continue to grow strongly in 2018 – and forecast total industry FuM at end 2018 to be in the range of $47-49B . Read our 2018 predictions article and stay tuned for our monthly ETF review throughout the year!