It has been a little more than a year since I joined BetaShares and, as the end of the year approaches, I feel it is the perfect time to reflect on some of the changes I have seen in both the Australian and Global exchange traded fund market during that time. With 2016 around the corner, I’ll also take a stab at where I think the future developments may lie for the Australian exchange traded fund industry.
At the beginning of 2014 the exchange traded fund industry had $10bn in assets under management (AUM) across 89 funds. By the time I joined BetaShares in October 2014 the industry had $13.4bn in AUM across 95 exchange traded products. By the end of 2014 that number had expanded to 101 funds and over $15bn in AUM.
Interesting fact: In 2014 the Australian exchange traded fund industry grew an astounding 50% in one year.
In addition to the +50% AUM growth in 2014, we also saw record high trading activity levels (+37%), with the three biggest increases in AUM occurring across the developed market international equities, Australian high yield equity and Cash sectors. The biggest outflows were in the commodities sectors (~$43 million).
Interesting fact: 2014 saw 12 speciality funds quoted on the ASX that bought innovative domestic and international opportunities for investors.
We launched 4 of those 12 funds including;
- BetaShares Australian Dividend Harvester Fund (managed fund) (HVST)
- BetaShares S&P 500 Yield Maximiser Fund (managed fund) (UMAX)
- BetaShares Geared Australian Equity Fund (hedge fund) (GEAR)
- BetaShares FTSE RAFI U.S. 1000 ETF (QUS)
With only a month to go, it is clear that, in 2015 the rapid upward trajectory of the industry will continue. Strong flows have continued in the Developed International Markets space (with interest in Europe outweighing the US) in the first quarter, while Asian equities including Japan, China and Hong Kong, dominated headlines mid-year. According to the BetaShares Australian ETF Review for October, we saw industry AUM break through the $20bn mark, bringing the year to date industry growth to ~+34%.
An impressive 42 funds have been launched this year as at end October, bringing the Australian industry total to 143 exchange traded products.
Interesting fact: 29 funds were launched in the first 5 months of 2015 alone compared to 12 in the whole of 2014.
Some of our international fund launches during 2015 included:
- BetaShares NASDAQ 100 ETF (NDQ)
- BetaShares US Equities Strong Bear Hedge Fund – Currency Hedged (BBUS)
- BetaShares Geared US Equity Fund – Currency Hedged (hedge fund) (GGUS)
Another interesting development occurring this year was the launch of the first truly-actively managed exchange traded managed fund on ASX – with another 2 added so far this year.
The Global ETF Industry also produced similarly stellar results for the year to date – albeit on a much, much bigger scale.
According to a well-known ETF Industry researcher, ETFGI, global exchange traded fund AUM reached a record US$3.015 trillion at the end of May 2015, making the industry bigger than the global hedge fund industry (US$2.969 trillion) for the first time in history.
Interesting fact: The exchange traded fund industry has been around for a relatively short 25 years compared to 66 years for the hedge fund industry.
In the first three quarters of 2015 record levels of assets were gathered in the exchange traded fund industry with global net inflows of US$250.5bn. These inflows were dominated by +US$145.4bn in the US (+7.8% on the previous record), +US$61.6bn in Europe (+30% on the previous record) and +US36.4bn in Japan (+143% on the previous record).
According to the same researcher there were 6,015 exchange traded funds from 271 providers traded on 63 exchanges in 51 countries by October 2015.
These numbers are truly mind boggling when you compare them to the inflows of the Australian market!
In my humble opinion, in the near future the Australian exchange traded fund market is likely to see growth in:
- Hedged exposures: with some investors believing that the USD/AUD trade is arguably coming to its end, it is possible that some investors will look to positioning portfolios and international exposures for a time when the AUD may potentially begin to rise.
- Actively managed funds: we have already seen the success of active products in the local market. We expect other active managers to explore exchange traded funds as the market matures.
- Fixed Income Funds: this an area of the industry which has developed far more slowly than has been the case offshore. We expect this to change and for more products to be launched over this asset class in the coming months and years.
What a year it’s been. Arguably the most exciting segment of the finance industry to be in at the moment – I really believe exchange traded funds offer investors a smart and strategic way to invest their money.
All the best for 2016 – see you next year for more exciting industry developments.