We take a look at what happened in 2018 in the world of ETFs in Australia, including new listings, funds flows, closures and changes in funds and finally our predictions for 2019.
As reported in our last post, 2018 was a turbulent year for investors, with falls in the latter half of the year seeing more losers than winners on the ETF front. Share price movements, although painful to investors in 2018 of course aren’t everything. Below we take a look at what else happened in 2018 in the world of ETFs in Australia, including new listings, funds flows, closures and changes in funds and finally our predictions for 2019.
There were 26 new ETFs listed in 2018, the second highest year of new listings, only beaten by 2015. 2018 closed the year with 191 ETFs listed on the ASX, a 10% increase on 2017.
When we take a look at the new listings, as has been the trend for a few years, global share ETFs dominated new listings with 61% of new listings. This is unsurprising, with the Australian Share market only making up around 2% of global share markets, the sheer diversity of options available globally means more opportunities for global ETFs, with many of these new global offerings focusing on niche thematics only available on global markets.
Arguably the most talked about new listing in 2018 was Betashares new Australia 200 (A200), which set a new benchmark for low cost ETFs in Australia, offering access to Australia’s largest 200 companies for just 0.07%, a cost 50% lower than the previous lowest cost ETF at 0.14% pa. Launched in May, it received over $350m in new inflows in 2018, making it one of the highest inflow new funds. Investors were clearly drawn to this new low cost benchmark.
Beyond A200, there were a range of interesting niche or thematic offerings providing investors access to themes that can be difficult to access by investing directly. Some of these included ETFS Battery Tech & Lithium ETF (ACDC), Betashares Global Robotics & Artificial Technology ETF (RBTZ), Betashares Asia Technology Tigers ETF (ASIA) and Vaneck Vectors China New Economy ETF (CNEW). These new offerings provide investors access to a growing range of themes or megatrends, and it will be interesting to see how they perform over the long term.
42% of the new ETFs listed in 2018 were Actively Managed ETFs. We’ve been predicting for some time that eventually Active ETFs will exceed Index ETFs on the ASX. Right now only 15% of ETFs are actively managed, but it is clear Active Investment Managers are taking ETFs seriously as a method to distribute their products to self directed investors in particular.
Despite a year of market volatility, ETFs again broke records for new inflows, receiving over $6 Billion in new inflows in 2018 to close the year with $40 Billion under management, up 13% from the previous year.
Of that $6 Billion in new inflows, almost half went to international share ETFs, followed by Australian Shares and Fixed Interest ETFs. One observation that can be gained from sector inflows is the increase in flows to both global shares and fixed income. This says to us that more investors are looking to ETFs to help diversify their portfolio into sectors traditionally difficult to trade as an Australian retail investor. As a result we expect to see continuing innovation in the global ETF & LIC space.
Whilst Index ETFs predictably dominated inflows with 64% of total new flows, the increase in availability of Smart Beta and Actively Managed ETFs in recent years has seen increases in flows to these ETFs, with the inflows to each now roughly in line with the numbers of each ETF type available. We’re sure ETF managers are taking note of this, and will continue innovating their smart beta and active offerings.
22 ETFs recorded flows of over $100 Million in 2018, with Vanguard’s popular Australian Share ETF (VAS) recording the highest inflows of $648m. Racing up the leaderboard were some reasonably recently listed ETFs, with the previously discussed Betashares A200 ETF recording the 3rd highest flows of $369m and their global sustainable companies ETF ETHI recording $114m in flows. A number of recently listed cash and fixed income ETFs, including QPON, BILL, FLOT and CRED also banked over $100m in flows.
|Ticker||Fund Name||2018 Inflow||Total Size|
|VAS||Vanguard Australian Shares Index||$648m||$3,086m|
|VGS||Vanguard MSCI Index International Series||$471m||$1,261m|
|A200||Betashares Australia 200 ETF||$369m||$401m|
|VEU||Vanguard All-World EX US Shares Index||$249m||$1,237m|
|MVW||VanEck Vectors Australian Equal Weight ETF||$234m||$615m|
|PIXX||Platinum International Fund (Quoted Managed Hedge Fund)||$223m||$297m|
|HBRD||BetaShares Active Australian Hybrids Fund (managed fund)||$185m||$207m|
|QPON||BetaShares Australian Bank Senior Floating Rate Bond ETF||$178m||$366m|
|WDMF||iShares Edge MSCI World Multifactor ETF||$165m||$172m|
|IAF||iShares UBS Composite Bond ETF||$150m||$657m|
|VHY||Vanguard Australian Shares High Yield ETF||$145m||$1,018m|
|BILL||iShares Core Cash ETF||$136m||$300m|
|NDQ||Betashares NASDAQ 100||$129m||$390m|
|VTS||Vanguard US Total Market Shares Index||$117m||$1,320m|
|VGAD||Vanguard MSCI Index International Series (Hedged)||$115m||$444m|
|QUAL||VanEck Vectors MSCI World Ex-Australia ETF||$114m||$434m|
|ETHI||BetaShares Global Sustainability Leaders ETF||$114m||$244m|
|VDHG||Vanguard Diversified High Growth Index ETF||$105m||$113m|
|CRED||BetaShares Australian Investment Grade Corporate Bond ETF||$105m||$110m|
|PAXX||Platinum Asia Fund (Quoted Managed Hedge Fund)||$104m||$140m|
|FLOT||Vaneck Vectors Australian Floating Rate ETF||$103m||$155m|
|MGE||Magellan Global Equities Fund||$103m||$1,131m|
Beyond the new listings, iShares this year converted 14 of their internationally domiciled ETFs to be Australian domiciled, removing the need for investors in these ETFs to complete W8-BEN forms in order to avoid additional tax. There’s now only 6 internationally domiciled ETFs remaining on the ASX. Hopefully the managers of these funds follow iShares lead to remove the need for Australian investors to complete the pesky W8-BEN.
As part of the above changes, iShares also closed 5 of their ‘uncommercial’ ETFs. There were 5 other ETFs closed this year for similar reasons. This brings the total count of ETF closures to 21 for the last 5 years. Whilst we appreciate the need for ETF providers to close their ETFs that are not profitable to be run, these closures are a lesson to investors to be careful if investing in ETFs with a low market capitalisation.
We’re predicting another big year for ETFs in 2019. Whilst market volatility may put the brakes on new listing volumes that we saw in 2018, we think we’ll still see plenty of new listings in 2019. With cryptocurrency fever well and truly over, we’re unlikely to see a Bitcoin ETF any time soon, but there are plenty of other unexplored themes still available for ETF providers to access, and we think we’ll see plenty more thematic offerings.
We see no slow down in Active ETF listings, as active fund managers attempt to penetrate the lucrative self directed & SMSF investor through their preferred investing platform, the ASX. We think more and more active fund managers will look at Active ETFs as part of their distribution strategy.
There’s only one certainty in life an investing, and that is that nothing remains the same. We’re sure 2019 will be no different.