As we wrote about in our last post, 2015 was a huge year for ETFs and LICs in Australia, with a total of 46 new products launched, and the total pool of funds sitting in these products growing by around 40%, all in a year that global share markets went nowhere. We think 2016 will be even bigger. Here’s our predictions:
We finished 2015 with 138 ETFs available on the ASX, a growth of ~35% from the previous year. We’re putting it out there and forecasting almost 50% growth in 2016 as the market continues to exponentially grow. We also think we’ll see the total size of the ETF market grow from around $21b to over $30b by year’s end.
ANZ was the first of the Australian banks to get on board the ETF train, however the success of their launch is questionable, with only $14m currently invested in their 6 funds. Nevertheless, we think the banks must be looking at the growth of the market and wanting a piece of it. We think at least one of the remaining big 3 will launch some funds this year. If we were to put a bet on it, we’d say CBA is best placed, given the strength of their Commsec trading platform they have a ready-made marketing and distribution channel.
As we discussed in our earlier post Getting Smart about Beta, Smart (also known as Strategic or Alternate) Beta was a huge growth area in 2015. If we take our lead from the trends in the US, we don’t think this will slow down. We think there are 2 reasons for this: Firstly, it is difficult to compete with the large index funds on price alone, so there must be a differentiator. Secondly, another year of sideways trading markets (as forecasted by many) will see investors become frustrated and seek alternatives to traditional indexes.
We also believe there will be huge growth in actively managed ETFs this year. Magellan pioneered this space last year as the first of the big active fund managers to list their unlisted managed fund as an exchange traded product with their MGE & MHG products. With the cumulative market cap of these funds now at $400m, they have publicly stated they have another one planned in 2016. As Platform and Wrap usage amongst Financial Advisers declines and more look to listed investments, coupled with the growing DIY SMSF sector, we wouldn’t be surprised if a number of Magellan’s competitors take their lead and we see a flood of new entrants in 2016.
Whilst the last few years have seen a flurry of new entrants into the ETF market, not all have been successful. In fact there are around 25 ETFs with less than $5m market cap. The commercial viability of these must be questionable, as a result we think we’ll see some managers cut their losses and wind up their non profitable funds.
In late 2015 we saw Bennelong Funds Management enter the LIC game with their Absolute Equity Performance Fund (AEG). This fund was based on the unlisted wholesale Bennelong Long/Short Fund, with the idea of listing a LIC reportedly due to a wholesale client wishing to redeem a large amount from the fund. The IPO was well oversubscribed, showing there are a lot of retail investors wanting a slice of what normally is reserved for the big end of town. We think some of the other big wholesale investors might see this as an easy way to raise some more funds and be able to off the fund to retail investors without all of the pesky requirements that come with a regular retail managed fund (managing applications, redemptions, enquiries, etc).
There you have it. Our top five predictions for 2016. We’ll see how close we got at the end of the year, but regardless we think we’ve got a big year in store!
Do you have any predictions for 2016?