SMSFundamentals: Active Managers Switch To ETFs

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As global ETF assets surpass US$10trn, the Australian ETF market is experiencing boom conditions and attracting increasing numbers of active managers.

-A buoyant ETF market attracts active managers
-The three top-performing ETF funds in the Australian market
-Globally, ETFs account for 25% of assets held by all equity funds
-Bitcoin and ESG-focused EFTs are boosting flows
 

By Mark Woodruff

As a result of boom conditions for Australian Exchange Traded Funds (ETFs), active managers now see greater growth opportunities in this market, compared to the former distribution channel of unlisted unit trusts.

Actively managed products have increased their share of new products by 26% over the last 12 months, according to John Dyall, head of investment research at Rainmaker Information.

Australia was one of the first movers in the world when it came to combining existing unlisted unit trusts with ETFs, according to Dyall. From around November 2020, several major fund managers restructured unit trusts into ETFs or formed hybrid structures.

This shift to active products is also part of an underlying trend where more actively-managed international equities products are entering the ETF market. Over one year, total assets for such products have grown more than fourfold to $20.5bn (16.35% of the market) from $3.7bn (5% of the market) as at 30 September 2020, according to Rainmaker data.

Meanwhile, active international equities funds structured as unit trusts lost an estimated -4% in funds flow over the past 12 months.

Australian ETF boom conditions quantified

In Australia, there has been ETF industry growth of 72% (or $53.2bn in net market capitalisation growth) over the last 12 months, according to data compiled by BetaShares, one of the top two leading managers of ETFs traded on the ASX.

A fresh record high of $126.9bn in market capitalisation was established in October, growing by $1.7bn for the month.

The top three performing funds were the ETFS Hydrogen ETF ((HGEN)) which rose by 23.8%, followed by the ETFS Ultra Long Nasdaq 100 Hedge Fund ((LNAS)) which climbed 18.4%, and the BetaShares Geared US Equity Fund Currency ((GGUS)) with a 15% return.

Global ETFs

Globally, total ETF assets have surpassed US$10tr, climbing from US$1tr in 2009, when an ETF investment trend began after the Great Financial Crisis.

In figures compiled by EPFR Global, the trend has further accelerated during 2021, with a further US$3tr added to the fourth quarter 2020 balance of US$7tr.

Drilling down further, equity ETFs now account for 25% of assets held by all equity funds, while 15% of all bond fund assets are lodged in ETFs.

Helping to boost inflows, a Bitcoin ETF set a new record for accumulating US$1bn in assets, while flows into ETFs with socially responsible or environmental, social and governance mandates (SRI/ESG) surged.

By geography, North America accounts for 65% of the total assets under management (AUM) for all ETFs. The next ETFs in order of AUM are: global 13%; emerging markets 9%; Asia Pacific 7% and Europe with a 5% share; all data by EPFR global.

Global Active ETFs and ETPs

After the nineteenth month of consecutive net inflows, the Global Active ETF/Exchange Traded Products (ETP) industry had assets of US$439bn at the end of October 2021, a 53.6% year-to-date (ytd) increase in 2021.

Net inflows of US$5.21bn flowed into equity-focused actively-managed ETFs/ETPs listed globally during October, bringing net inflows ytd in 2021 to US$57.93bn. This compares to the US$19.47bn of net inflows into equity products for the comparable period in 2020.

Fixed-Income focused actively-managed ETFs/ETPs listed globally attracted net inflows of US$2.53bn during October, bringing net inflows ytd in 2021 to US$48.33bn. Again, this far exceeds the US$34.72bn for the reference period in 2020.

At the end of October there were 1,338 ETFs/ETPs, with 1,646 listings from 258 providers listed on 29 exchanges in 22 countries.

October inflows for global ETFs and ETPs

Globally, substantial inflows can be attributed to the top 20 active ETFs/ETPs by net new assets, which collectively gathered US$6.73bn during October.

The US-listed Nuveen Growth Opportunities ETF, [ticker code: NUGO], which invests in a concentrated portfolio of US companies with market capitalisations of at least US$1bn, gathered the largest individual net inflow of US$1.65bn, as shown in the table below.

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