ETF market records best year but investors still seeking safe havens amid market volatility
Vanguard | 11 October 2019
The Australian ETF market attracted $4.3b in new cash flows in the third quarter of 2019, the highest quarterly cash flows ever recorded.
The mammoth inflows contributed to the market surpassing $8.9b for the year to date, eclipsing the $8.1b received in 2017 with still three months to go according to the latest figures from the ASX and Vanguard.
Overall ETF industry AUM grew to $55.91b at the end of Q3, up more than 32 per cent year on year, which the Head of Vanguard's Equity Index Group in Asia-Pacific, Duncan Burns, said demonstrated a more enduring appeal for ETFs among a variety of investors, with no sign of momentum slowing.
"Since their launch almost two decades ago, ETFs continue to experience rapid growth because of their low cost, access to diversification and transparency", Mr Burns said.
"Australian investors have become more focused on diversifying their portfolios, lowering their investment costs and using investment products that are true to label. It's gratifying to see more and more investors understanding the benefits of ETFs and the low cost diversification ETFs can offer their investment portfolios."
While Australian equities attracted the majority of inflows this quarter (36 per cent), the key trend for 2019 has been investor demand for fixed income products, with cash flows into the asset class surpassing $3.4b for the year so far, claiming more than international equities ($2.3b) and Australian equities ($2.5b).
Commenting on the trend, Mr Burns said, "The continued interest in fixed income suggests that investors may be harbouring reservations around equity market growth and choosing to seek more defensive assets instead. It's important for investors to remember that their portfolio should reflect their tolerance for risk in a variety of market conditions, as market ups and downs will occur over time.
"Keeping a long-term perspective is critical and if investors are looking for a way to safe guard their portfolio, one of the best ways is through maintaining maximum diversification across asset classes.
"Market timing is extremely difficult to execute well, even for professional active money managers. Regardless of what's happening with interest rates and the broader economy, fixed income investments should continue to play an integral role in diversified portfolios.
"Taking a long-term view, interest rates likely won't be this low forever, and the eventuality of rising rates mean future bond returns will improve as bond funds reinvest coupons and maturing bonds alike in new higher yielding securities."
Vanguard received 33 per cent of new cash flows in September, with $158m being allocated to the Vanguard Australian Shares Index ETF (VAS), which celebrated 10 years in the market this year, alongside Vanguard All-World ex-U.S. Shares Index ETF (VEU) and Vanguard U.S. Total Market Shares Index ETF (VTS).
According to registry data, VEU and VTS is the most common pairing among Vanguard investors, followed by VAS and the Vanguard MSCI Index International Shares ETF (VGS), with both options providing investors with a global, diversified portfolio in just two ETFs, Mr Burns noted.
"When we launched our first Australian ETFs 10 years ago, it was with the intention to provide investors with access to broad market, straightforward and low cost products that they could use to simply and instantly build a global balanced portfolio. It's rewarding to see investors continue to benefit from this a decade on."
As at 30 September 2019, Vanguard Australia continues to be the largest ETF manager with AUD$17.5 billion under management.
Quarter 3, 2019 ETF market net cash flow by asset class
|Asset class||Cash Flow ($m)||Cash Flow
(% of total market)
|Australian Fixed Income||920.8||21.2|
|Global Fixed Income||271.4||6.3|
Quarter 3, 2019 ETF market cash flow by issuer (Top 5)
|Issuer||Cash Flow ($m)||Cash Flow
(% of total market)
Quarter 3, 2019 ETF market cash flow by product (Top 5)
|Product||Cash Flow ($m)|
|Vanguard Australian Shares Index ETF (VAS)||323|
|BetaShares Australian High Interest Cash ETF||310|
|iShares Core S&P/ASX 200 ETF||212|
|Vanguard Australian Fixed Interest Index ETF (VAF)||212|
|BetaShares Australia 200 ETF||206|
With more than AUD $8.3 trillion in assets under management as of 31 August 2019, 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.
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