Providers of exchange-traded funds (ETF) expect to benefit from the increasing competition between self-managed superannuation funds (SMSF) and industry funds, as super funds are looking at giving their members more flexibility.

The launch of AustralianSuper's Member Direct platform at the end of last year - aimed at the more affluent members - sees the industry fund moving from an institutional buyer to also becoming a distributor of wealth management products.

The platform gives members the possibility to invest in a range of iShares ETFs, as well as term deposits and even research reports.

Tria Investment Partners has already hailed it as a milestone.

"It's a little clunky and being a hybrid it is something of a compromise - it's not particularly efficient to combine pre-tax and post-tax investments, for example - and it will be interesting to see how the administration (split between SuperPartners and UBS) stands up if volumes ramp up," Tria managing partner Andrew Baker said.

"But we like the direction, it looks good online, and later versions will presumably improve on it."
 
Members with more than $10,000 in their account can put up to 80 per cent of their money in these products, with a limit of 20 per cent in a single security.

Betashares head of investment strategy Drew Corbett said the move was a positive for the ETF sector.

"The more you open platforms that were previously restricted and allow investors control over their assets, I expect that to be positive for assets to come into ETFs," Corbett said.

But he was disappointed AustralianSuper had decided to team up with a particular provider rather than a product.

"You are restricting the asset class diversity for your members. It restricts the fund from taking market share from SMSFs, because in an SMSF I don't have that restriction," he said.

"We've seen inflows into gold bullion and into our currency ETF. If these funds are considering direct access to ASX (Australian Securities Exchange)-listed equities and ETFs, they need to think about asset classes and the diversity they are offering through ETFs."

But he said it also marked an important first step and he believed the take-up of ETFs by the institutional market would gather pace, helped by the regulatory push for low-cost products and the greater acceptance of ETFs by asset consultants.

"As asset owners hear more about ETFs, they start asking consultants more questions, and as asset consultants do more research, they are starting to see some uses for them," he said.

Although the market capitalisation of ETFs listed on the ASX dropped by $260 million in 2011, investors put $512 million in new funds into ETFs.

"I think given the fixed-income class coming into the market and the commodity class - we only launched our new suit in November/December - there is no reason we will not double the inflows that we saw in 2011," Corbett said.

"That is also premised on increasing institutional usage."

IShares director of institutional sales Oliver Berry was also positive on the potential take-up of ETFs through models such as Member Direct.

"I think this new Member Direct model will have value. I think it will certainly be one product development stream that you would expect will gather assets," Berry said.

"Clearly, it will be dependent on the dynamics of cost."

But he also said that, contrary to the common perception, institutional investors, including super funds, were already quite sophisticated users of ETFs, albeit predominantly of offshore listed products.

"Institutions, they have been using ETFs for over 10 years, and they are buying them in the US market, the Canadian market and the European market and specific Asian markets, Singapore and Hong Kong," he said.

"So when people are trying to assess how institutions are using ETFs it is difficult, because institutions are typically cautious about disclosing their usage, because there are confidentiality issues.

"You've got a market that in ETF terms is purely based on ASX assets under management, so that is, depending on the day, $4.5-5 billion. That is one dynamic.

"You've got another dynamic, which is Australian institutions and our estimate, based on the ASX volume, we think that the institutional usage is between two and three times that [amount] in offshore products."

Institutions were mainly using offshore ETFs for cash equitisation, transition management, tilting, rebalancing measures and liquidity management, he said.

It is difficult to make any predictions of what the demand for ETFs will be through Member Direct because the service was only launched a few weeks ago. But Berry said he expected super fund member interest would be largely similar to the demand from the SMSF market.

"In general, the kind of themes people are interested in is the focus on income, Australian small caps and then larger international themes like emerging markets, Asia and a diversified exposure to global markets," he said.

The company has not yet explored the idea of ETFs that are tailor-made for superannuation members.

"It is early days, in this Member Direct life, but certainly over time we will get some idea of the kind of usage [of ETFs]," Berry said.

Both providers expected AustralianSuper's initiative would be followed by other super funds.

Legalsuper is among those funds that keep an eye on developments in the ETF market.

The super fund already offers an ASX 200 Investment option that allows members to select their own equities.

Legalsuper chief executive Andrew Proebstl said the fund had ETFs as a member option under review. "Our ASX 200 Investment option runs on a platform that is also able to offer ETFs. So we do have the ability," he said.

The back office of this platform is run by Macquarie, which enables access to ETFs, but Proebstl said the fund would first look at expanding the ASX 200 option to include the 300 largest ASX companies, before venturing into ETFs.