Australian ETF Review HY2021– Impressive growth as the industry steams past $100bn

In what was a milestone first half-year, we saw Australia’s ETF industry break the $100 billion mark in March 2021 and then steam ahead beyond that point. 

Australian ETP Market Cap: August 2001 – June 2021

CAGR: Compound Annual Growth Rate

Source: ASX, Chi-X, BetaShares

Market cap

• ASX Exchange Traded Product market cap: $115.7 billion¹
• Market cap growth for half year: 22%, $20.6 billion
• Market cap growth for the last 12 months: 76%, + $49.9 billion – the fastest yearly growth (in dollar terms) on record

Comment: With strong sharemarket performance as a tailwind we saw industry funds under management increase rapidly. We saw Australian ETF industry growth of 22% for the half, to end the financial year at $115.7B, an all-time high. Industry FuM grew ~$20B in the first half of the year, just under half of which came from net flows, and the remainder from asset value appreciation.

1. Includes total FuM for ETFs trading on both ASX and Chi-X

New money

• Net new money for half year (units outstanding by dollar value): +$8.8 billion (6% more growth compared to $8.3 billion in the first half of 2020)

Comment: While asset value growth was far more meaningful as a proportion of growth compared to previous periods, we continued to see robust inflows into the industry, with net new money for the half year of $8.8 billion. This represents an increase of 6% from the first half of 2020, where net flows were $8.3 billion. That said, flows were a lot lower than the previous six months (which were a record for the industry) – in the second half of 2020, flows were more than $14 billion.

Products

• 266 Exchange Traded Products trading on the ASX and Chi-X
• New/closed products: 15 new products launched in the half year, 5 products matured, 2 products closed
• Seven new issuers joined the market, all of which were Active managers, four funds converted into Active ETFs – there are currently 30 issuers of ETPs in Australia
• We saw the first conversion of a Listed Investment Company into an Active ETF (Monash Investors)

Comment: Product development activity remained robust in the first half of 2021, with 15 new products launched. Perhaps most notably this included seven new issuers entering the market, all of which were active managers. 

Strikingly, in this last half we saw the first conversion of a Listed Investment Company into an Active ETF (Monash Investors) – this is a trend that we believe many more will follow into the future (Magellan have already started the process for one of their LITs), as the LIC/LIT industry continues to languish. 

Passive index products took in the vast majority of flows for this half year, and remain the dominant category by a very wide margin. Active ETFs saw their share of flows marginally improve (1 percentage point difference to the 2020 share of 10%). It is important to note that the absolute number of active ETFs that are taking in substantial flows are few and far between – for example, the top three active ETFs for flows represented more than 80% of the category’s flows this half.

Trading value

• Trading value for this half was almost identical to the previous half year period, and remained high post the ‘break out’ we saw in trading during the initial reaction to COVID in Market 2020 and beyond.

Comment: ETF trading values remained strong. Trading value for this half was almost identical to the previous half year period and we are now seeing sustained ETF monthly trading values of between $7 billion and $8 billion on the ASX.

Performance

• Best performing exposures for the half year came from the Crude Oil Futures ETF (ASX: OOO) (50% return for half year) followed by our Geared U.S. Shares Fund (ASX: GGUS) (34% return for half year)

Top 5 category inflows (by $) – YTD