Millennials will continue to be a core driver of growth and interest in ETFs next year, alongside innovation in fixed income ETFs and the rising popularity of active ETFs, predicts BetaShares.
According to a note by BetaShares outlining three predictions for the ETF industry for 2018, Millennials have contributed to the growth of the ETF sector having gravitated to it for its flexibility in allowing them to select investment themes important to them.
“Millennials are attracted by the low cost, simplicity and ease of use of ETFs,” the note said.
“ETFs such as the Australian and Global Sustainability Leaders ETFs allow younger investors to invest according to their values, whereas products such as the Nasdaq 100 ETF or our Cybersecurity ETF, allow them to be exposed to companies whose products resonate with their daily lives.”
Citing CommSec data from this year, the note revealed Millennials made up 25 per cent of all ETF trades done in Australia this year.
Feedback from BetaShares’ younger clients also established that interest in ETFs was due to its diversification benefits, which allowed them to begin investing in share markets.
BetaShares also predicted active ETFs to rise in popularity in 2018, allowing for investors to diversify their portfolios alongside passive ETFs.
“Indeed, active ETFs have the potential to match the growth of passive ETFs, with the launch of a number of funds offering access to active management strategies,” the note said.
And although BetaShares was still a “strong advocate” for passive investing, active investing could still add value, the note said.
Finally, BetaShares predicted fixed income ETFs would continue to enjoy greater innovation that would provide investors with “much-needed access to lower risk, income-producing assets”.
“With interest rates at record lows, exchange traded products are giving investors vehicles to gain exposure to bonds that goes beyond traditional fixed-rate exposure,” the note said.
Furthermore, floating rate bonds allowed for interest payments to be adjusted in order to mirror peaks or troughs in benchmark interest rates, which was useful in a rising interest rate environment, it continued.
“Floating rate bonds posted good returns over the past year, and appear well placed to continue to perform strongly given the current level of interest rates. Across all predictions, growth remains the consistent theme,” the note concluded.
Economists agree that the Reserve Bank is likely to remain in inflation fighting mode until December. ...