With the silly season upon us, I feel it’s the perfect time to reflect on 2016. It has been a big year for ETPs in Australia and around the world! I’ll also try to make some predictions on where I think the future developments may lie for the Australian exchange traded products industry, as we move towards 2017 and beyond.
At the beginning of the year, the exchange traded product industry had ~$21.4bn in assets under management (AUM) across 169 funds. As at the end of October 2016, with two months still to go, the industry has grown to over $24.4bn in AUM across 199 exchange traded products.
There have certainly been some major shocks to the global markets in 2016, with a horror start for global sharemarkets in January, there was Brexit in June and a surprising Trump win for the U.S. presidency earlier this month. Despite the global shockwaves, the Aussie market is marginally higher than the beginning of the year and may look to finish even higher if the momentum carries till the end of the year.
In addition to the 16% AUM growth for the last 12 months to October 2016, we also saw record high trading activity levels (+18% YoY), with the three biggest increases in AUM occurring across Aussie equities, International equities and Fixed Income exposures. There were very little outflows overall for the year, but what did flow out was mostly from Asian equities (Ex-Japan).
- Betashares Australian High Interest Cash ETF
- BetaShares Australian Equity Strong Bear Fund (ASX: BBOZ)
- BetaShares U.S Dollar ETF (ASX: USD)
With only a month to go and based on recent growth, it seems clear to me that in 2016 the upward trajectory of the industry will continue. Strong flows have continued in the domestic space, along with international markets and specific sectors being looked at in reaction to President-Elect Trump’s business-friendly stance and expansionary fiscal policy. According to the BetaShares Australian ETF Review for October, we saw industry AUM at the $24.1 billion mark, bringing the industry growth to ~+16.4% in the last 12 months.
An impressive 30 funds have been launched this year as at October end, bringing the Australian industry total to 199 exchange traded products.
Interesting fact: Currency hedging was a major theme for ETPs in 2016. BetaShares has launched a suite of currency-hedged global sector ETFs which include:
- BetaShares Global Healthcare ETF – Currency Hedged (ASX: DRUG)
- BetaShares Global Agriculture ETF – Currency Hedged (ASX: FOOD)
- BetaShares Global Banks ETF – Currency Hedged (ASX: BNKS)
- BetaShares Global Gold Miners ETF – Currency Hedged (ASX: MNRS)
- BetaShares Global Energy Companies ETF – Currency Hedged (ASX: FUEL)
Reaching the Billion Dollar Club!
The BetaShares Australian High Interest Cash ETF (AAA) was the newest ETF to join the $1 Billion AUM list, crossing the mark earlier this month. There are currently only 5 ETFs that have over $1bn of AUM in the Aussie market.
The Global ETP Industry also produced similarly stellar results for the year to date – albeit on a much larger scale. Even after the disappointing start to 2016, the FTSE UK index rebounded as much as 19% higher after Brexit and the U.S. markets continued to make all-time highs after the underdog, Trump result.
According to a well-known ETP Industry researcher, ETFGI, global exchange traded product AUM reached a record US$3.4 trillion at the end of the Q3 2016, remaining ~10% larger than the global hedge fund industry (US$2.9 trillion), and having experienced 32 consecutive months of net inflows.
According to the same researcher, as at the end of October there were 6,526 ETPs (+511) issued by 284 providers, being traded on 65 exchanges across 53 countries.
These international numbers are truly mind boggling when you compare them to the inflows of the Australian market. I’m confident that I’m working in the most exciting and growth filled sector of the investment industry!
In my humble opinion, over the 2017 year the Australian exchange traded product market is likely to see growth in:
- Factor based products: not exactly active, and not just passive, these ETPs weight by factors other than market cap to hopefully produce alpha by breaking the link between price and weight.
- Hedged exposures: whilst the AUD has proven resilient over the year, not dropping close to most analysts’ expectations, it can be said that the easy money has been made being unhedged. In regions such as Europe and Japan, equity markets have historically performed best when their currency is falling, so it is always prudent to take a look at exposures hedged and unhedged and select what suits. I expect plenty more options to play exposures both hedged and unhedged in the Australian market.
- Active exchange traded managed funds: we have seen more entrants into this space in 2016. With the success and acceptance of these products, I assume we will see a lot more of them to hit the market in 2017.
- Fixed Income Funds: still plenty of room for more of these types of exposures and an area I would expect further launches in.
What a year of ups and downs! ETPs have arguably been the most exciting segment of the finance industry, with a lot more growth to be seen – I really can’t wait to see what 2017 brings and what new ideas will be brought to market by the ETP providers.
All the best for 2017 – see you next year for more exciting industry developments. Happy Trading!