ETF market records third best quarter on record amid COVID chaos

Vanguard | 30 April 2020


The Australian ETF market weathered the storm in the first quarter of 2020, attracting a total of $3.8b in new inflows, making it the third strongest quarter on record according to latest figures from the ASX and Vanguard.

Despite COVID-19 causing uncertainty and unprecedented market volatility in the latter half of the quarter, Q1 2020 was also Vanguard's third largest quarter on record with $1.51b in cash flow (40 per cent of total market cash flow), behind Q4 2019 ($1.78b) and Q3 2019 ($1.54b), showing investors were confident to use ETFs during market volatility, said Minh Tieu, Head of Capital Markets for Asia-Pacific.

"Vanguard ETFs have proven resilient during the recent market volatility as they continued to offer investors the ability to manage their exposures with numerous benefits including intraday trading flexibility, broad diversification and low costs."

"In line with prior periods of volatility, ETF bid-ask spreads widened during the volatility as market makers adjusted their quotes to compensate for higher trading costs. The volume-weighted spread of Vanguard's ETFs has been about 4 basis points (or 0.04 per cent) since the elevated volatility began in late February, compared to the 2019 average of 2 basis points."

Early in the quarter, global equities captured the majority of Australian ETF cash flow. However, as the quarter closed, investor preference shifted strongly to Australian equities with the Vanguard Australian Shares Index ETF (VAS) attracting $752m in the first three months of the year, extending its position as the most popular product in the Australian ETF market.

"As March rounded out we saw opportunistic buying activity with the lower prices in Australian Equity ETFs," said Mr Tieu when speaking of the trend.

"However, it's important to reiterate that in times like these, investors should stay the course and maintain their focus on long-term goals as extreme volatility and market stress can test investors' resolve."

Strong outflows for the quarter centered around Australian fixed income and cash with the asset classes dropping $17m and $190m in cash flow respectively, despite Vanguard fixed income products being the best performers of the quarter, with the Vanguard Australian Government Bond Index ETF (VGB) providing a 3.61 per cent return to investors.

The market volatility experienced in Q1 lead to premiums and discounts on some fixed income ETFs being larger than normal, with the gap between the market prices of some bond ETFs and their respective net asset values (NAV) growing larger than the typical premium or discount leading to unusually large discounts for ETFs, which is to be expected according to Mr Tieu.

"Bond ETFs serve as a vital source of price discovery and liquidity for the fixed income markets, particularly during periods of relatively low liquidity in the underlying holdings of bond ETFs.

"It is normal and expected that the divergence between an ETF's market price and NAV can increase, particularly for bond ETFs, during periods elevated market volatility and reduced liquidity, due to the nature of bond market pricing and the increased cost of liquidity in volatile markets.

"Vanguard has been serving investors for more than four decades, and over that time, we've experienced a number of different market environments. Our ETFs are managed to ensure that they are well positioned to provide investors with access to broad markets through straightforward and low-cost products that they could use to simply and quickly build a global balanced portfolio.

"Throughout all market conditions, Vanguard has remained fiscally sound and ready to serve investors," Mr Tieu said.

As at 31 March 2020, Vanguard Australia continues to be the largest ETF manager with AUD$17.6b under management and 29 ETF products on offer.

View the complete Vanguard ETF quarterly report here.

Quarter 1, 2020 ETF market net cash flow by asset class

Asset class
Cash Flow
Cash Flow
(% of total market)
Australian equity 1897 49.9%
Global equity 1026 27.0%
Infrastructure 124 3.3%
Australian fixed income -17 -0.5%
Global fixed income 142 3.7%
Cash -190 -5.0%
Australian property 117 3.1%
Global property 30 0.8%
Commodity 492 12.9%
Currency 54 1.4%
Multi asset 125 3.3%

Quarter 1, 2020 ETF market cash flow by issuer (Top 5)

Cash Flow ($m) Cash Flow
(% of total market)
Vanguard 1508.8 39.7%
BetaShares 821.7 21.6%
VanEck 367.3 9.7%
ETFS 316.5 8.3%
State Street 286.7 7.5%

Quarter 1, 2020 ETF market cash flow by product (Top 5)

ASX Code Cash Flow ($m)
Vanguard Australian Shares Index ETF VAS $752.36
ETFS Physical Gold GOLD $280.37
SPDR S&P/ASX 200 STW $253.96
iShares Core S&P/ASX 200 ETF IOZ $198.25
Vanguard MSCI Index International Shares (Hedged) ETF VGAD $167.61

About Vanguard

With more than AUD $8.6 trillion in assets under management as of 31 March 2020, including more than AUD $1.6 trillion in ETFs, Vanguard is one of the world's largest global investment management companies. In Australia, Vanguard has been serving financial advisers, retail clients and institutional investors for more than 20 years.

For further information please contact:
Francesca Marinucci
Senior Public Relations Specialist
+61 413 559 766