Global ETF sector growing by 20% annually

Four out of the top 10 traded securities in the US last year were ETFs.

The exchange traded fund (ETF) sector is going from strength to strength, with the BetaShares Global ETF Review today revealing the industry has seen an annual growth rate of 20% since 2005. The report is the first in a new series of quarterly reviews into the global ETF sector and was presented at a media event in Sydney on Thursday.

Globally, the ETF industry had $4.8 trillion in assets under management at the end of 2018. In the US, the two main industries that investors were buying into via ETFs were technology and healthcare, with the financial sector the most sold.

CEO of BetaShares, a leading provider of ETFs, Alex Vynokur said more and more investors are turning to ETFs instead of other forms of passive investments, like managed funds. Vynokur said investors were attracted to ETFs because of their easy access, instant diversification and low cost. “A large number of asset managers are realising this is not just a fad, this isn’t just a trend. While recent growth has been fast, we believe Australian investors are just starting to scratch the surface when it comes to ETF usage and believe that the local ETF industry is positioned for a period of strong growth,” Vynokur said.

ETFs aren’t moving the market

The idea that the huge number of investors buying into ETFs are impacting market returns and market volatility has been raised several times throughout the past year. However, Vynokur dismisses this notion.

“Saying ETFs can move markets makes little sense. ETFs are designed to replicate what their underlying securities do. Nothing more, nothing less. We’re not quite at a point yet where ETFs are absolutely dominating. ETFs are a reflection of consumer sentiment, but they’re certainly not the driver of market returns,” said Vynokur.

The report also tracked the inflow of funds into US ETFs in 2018 against the performance of the S&P 500 Index and reveals that the two have acted independently of one another. For example, in December 2018, the Index saw a sharp decline producing negative returns, while the flow of funds into ETFs remained high.

More young Australians predicted to invest in ETFs

In the US, almost one-third (31%) of investors are using ETFs, compared to just 4.5% of local investors. Vynokur says the US market is kind of like a blueprint for the Australian market, and we can expect to see the same level of growth here.

“For young investors, ETFs are a great way to start investing. Property ownership is becoming more and more out of reach for young Australians. They realise they need to invest, but can’t afford a property. Millennials who are not yet invested elsewhere are starting to look at ETFs to get started.”

Vynokur said that 80% of Australian who are invested in ETFs continue to invest more into ETFs, but it’s breaking the barrier and getting people to make that initial investment that is difficult. “The majority of Australians still don’t quite understand what ETFs are. We need to continue the education,” he said.

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