ETF Industry Set To Benefit From Royal Commission
Ilan Israelstam | Mar 20, 2019 13:36
The tenth annual BetaShares/Investment Trends ETF Report provides a unique snapshot of the key statistics and drivers in the Australian Exchange Traded Fund (ETF) industry, from the perspective of self-directed investors, SMSFs and financial planners.
The latest report shows the ETF industry is going from strength to strength, as record numbers of investors enter the Australian ETF market.
h2 Key findings of the report/h2The insights collected from this round of research are based on responses from around 8,000 investors and 800 advisers:
- The number of ETF investors in Australia grew by 22% in the 12 months to October 2018, reaching a record high of 385,000.
- The number of investors holding ETFs through an SMSF rose to 120,000 from 105,000 the previous year, an increase of 14%. Diversification and access to overseas markets are the main drivers for this market.
- Growth in non-SMSF investors was even stronger, with an increase of more than 24% from 213,000 investors in 2017 to 265,000 in 2018.
- With increasing mainstream take-up of ETFs, the average age of ETF investors has fallen. 29% of ETF investors are millennials, up from 19% in 2013.
- The use of ETFs by financial advisers continues to grow, with more than half of all advisers (53%) now recommending ETFs (up from 45% in 2017).
The number of Australian investors using ETFs has grown to a record number of 385,000, up 22% from 314,000 the previous year.
Investors holding ETFs through an SMSF increased to 120,000, up 15,000 from the previous year. That said, SMSF ETF investors as a percentage of the total ETF market declined from 33% in 2017 to 31% in 2018, reflecting a surge in the number of self-directed investors who are utilising ETFs outside of SMSFs (up by 52,000 from 2017).
Diversification remains the primary driving factor for SMSFs, with 77% of SMSF investors citing this as a reason for using ETFs, followed by access to overseas markets (65%) and low cost (53%).
h2 The average ETF investor is getting younger/h2The average age of an ETF investor is 46 years, down from 51 years in 2013.
29% of ETF investors are millennials, compared to 19% five years ago. We believe that these trends will continue, and that younger investors in particular will be a big part of the ETF growth story in the future.
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Source: BetaShares/Investment Trends ETF Report, 2019
h2 Use of ETFs by financial advisers continues to rise/h2Reflecting the increased use of ETFs by investors generally, financial advisers are adopting ETFs in increasing numbers. More than half of all advisers (53%) now recommend ETFs (up from 45% in 2017). A further 16% intend to use ETFs within the next year.
h2 Number of financial advisers using ETFs in Australia/h2Source: BetaShares/Investment Trends ETF Report, 2019
51% of financial advisers agreed that the use of ETFs has been of financial benefit to their clients, while 45% said that using ETFs had enabled them to service more clients.
While financial adviser usage of ETFs is high, there is still significant potential to get more adviser involvement in the ETF market, with only 21% of investors saying a financial adviser was involved in their most recent decision to invest in ETFs.
We believe that the Royal Commission could have a positive impact on the ETF industry, with financial advisers likely to favour lower cost, transparent products in recommendations to their clients.
h2 Increased interest in responsible investing/h2We saw an increased focus on responsible investing by ETF investors. The market cap of ESG-oriented ETFs grew by a factor of 10 over the last four years, from $77 million in 2015 to $844 million in 2018.
One in three ETF investors has already applied the concept of ESG in their investing over the last 12 months, while 25% of financial advisers have expressed interest in more education on socially responsible investing.
h2 Market Cap for ESG-Orientated ETFs: 2015 – January 2019 (A $M)/h2Source: ASX, BetaShares/Investment Trends ETF Report, 2019. As at 31 January 2019. Inflow data as at 31 December 2018.
h2 Outlook for the sector/h2The Report projects a record 437,000 Australians will be invested in ETFs by September 2019. This year looks to be another exciting one for the ETF industry, and we expect the growth we are currently seeing to continue strongly. We project the Australian ETF industry could end 2019 with $50 – $55 billion in funds under management.
Australian ETP Market Cap: July 2001 – February 2019 (A $M)
Source: ASX, BetaShares. CAGR: Compound Annual Growth Rate.
As well as expecting more Australians to join the ranks of ETF investors, we believe there is an opportunity to increase existing investors’ participation. More than half of all ETF investors rate their understanding of ETFs as average or lower, suggesting efforts to improve investor knowledge may prove rewarding.
We believe that 2019 is likely to see increased adoption of ETF model portfolios, and greater interest in non-equity ETFs such as fixed income.
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