ETFs reached a market capitalisation of $12.3 billion, up 47.5 per cent over the 12 months to 31 July.
Product development across the sector flattened out from the highs of 2011 and 2012, with a large amount of replication occurring across the issuers as the market continued to develop a base, according to Zenith Investment Partners.
However, more recent strategy development has resulted in a broadening of the ETF tools available for more comprehensive portfolio construction.
Zenith’s 2014 ETF sector report focuses on the continuing theme of ‘yield hunting’ and examines the different methodologies ETFs are using in the evolution of yield generating portfolios.
The group has continued to examine the ‘smart beta’ sector – ETFs using alternative approaches to the more traditional market cap-weighted strategies.
While many of these strategies still lack long track records, early indications support recent global findings that alternative beta ETFs are capable of blurring the lines between active and passive strategies in terms of outcome, Zenith Investment Partners senior investment analyst Dugald Higgins said.
“The alternative beta story continues to show a lot of potential attraction and we see plenty of opportunity for these products as a low-cost option for some portfolio exposures,” Mr Higgins said.
“However, we continue our caution regarding alternative beta ETFs on several key fronts,” he added.
“Users need to be aware of the inherent characteristics of these products which are very different from traditional market-weighted strategies.”
