Institutional investors tend to use ETFs listed overseas, but as the Australian market matures they will start looking closer to home, predicts Market Vectors.
Speaking to InvestorDaily, Market Vectors chief operating officer Adam Phillips, who is based in the US, noted that both the US and Europe ETF markets started out as institutional markets.
But that is rapidly changing – and has already changed in the US, Mr Phillips said.
"In terms of the number of users, the financial adviser community and the DIY retail space have all adopted ETFs as tools that they use," he said.
In Australia, however, the market has evolved the other way – with financial advisers and stockbrokers using ETFs first, Mr Phillips said.
"As the market matures and as trading volumes pick up and assets increase the institutions will use more Australian-listed ETFs," he said.
In Market Vectors' experience, Australian institutions do in fact use ETFs – but they purchase them in overseas jurisdictions such as the US market.
"We have customers from all over the world in our US-listed ETFs including Australia," Mr Phillips said.
"So there are plenty of people sophisticated enough to buy ETFs, but maybe not [those that are listed] here in Australia yet," he said.
There is still a lot of legwork yet to be done to educate investors – both retail and institutional – about the benefits of ETFs, Mr Phillips said.
"All ETF firms globally and in Australia are doing that work to educate folk on how ETFs are used and how they fit into portfolios," he said.