Remuneration changes prompt advisers to lift Oz ETF market
Australia’s exchange-traded fund (ETF) market is booming following a rush of financial advisers pushing the product across the region.
The ETF marketplace has hit record levels across the last 12 months with changes to adviser activity joined with investors’ needs for diversification and an increasing demand from the self-managed superannuation fund (SMSF) and millennial segments, according to research undertaken by global research and consulting firm Cerulli Associates.
In November 2017, according to BetaShares, total funds under management for ETFs listed on the Australian Securities Exchange (ASX) hit a record A$35.5bn ($27.8bn), reflecting 44.2% year-on-year growth in market capitalization and 6% for the month.
Net new inflows into ETFs also set a new record, at A$1.3bn for November. Six new products appeared during the month, bringing the total number of exchange-traded products available on the ASX to 222.
Among financial planners, changes in the remuneration structure which mean that they are now being paid on a fee-for-service basis, has lead to advisers being product agnostic. In this environment, Cerulli says, planners are happier to recommend ETFs as the building blocks of a portfolio. “Planners also like them because they are very simple to explain and they fulfill an obvious role in the portfolio cheaply, efficiently, and with ample liquidity,” a Cerulli spokesperson said.
The Cerulli report adds that rretail investors in recent years have been looking for diversification, ease of access, and low cost – all of which are provided by ETFs. ETFs are extremely popular among the SMSF segment, where investors eschew commercially managed superannuation (pension) funds and instead opt to go it alone.
“Millennials are also gravitating toward products that combine low cost, simplicity, and ease of use. Some providers target this group with specific themed ETFs, such as those geared toward technology, cybersecurity, or sustainability,” the spokesperson added.
Going forward there is likely to be more product supply and innovation. Institutional engagement in this market is also expected to rise, with Cerulli hearing of more and more professional institutions–including investment banks–using ETFs, and not necessarily for passive purposes, but also as an active thematic position. These factors, combined with ETFs’ relatively low attrition rate, make the ETF space “one to watch out for,” the report concluded.