The assets under management (AUM) of Australia’s ETF industry dropped to $119 billion in Q2, down from $132 billion in Q1 for a fall of almost 10 per cent.
According to data released by the ASX and Vanguard, net inflows to Aussie ETFs fell by 34 per cent during the second quarter of the year but remained positive at $3.1 billion.
“The fall in industry AUM is no surprise given the level of volatility plaguing global markets this year, but we’re encouraged to see net inflows are still positive – a sign that most investors are still relatively undeterred and remain focused on their long-term goals,” commented Vanguard Australia head of ETF capital markets, Asia-Pacific, Minh Tieu.
Vanguard reported that investors had demonstrated a preference for broad market ETFs in Q2, with the firm’s Australian Shares Index ETF (VAS) receiving almost one-third of all flows.
“Broad-based ETFs make for a solid portfolio core as they provide investors instant exposure to hundreds of securities, reducing the reliance on the performance of any one company or trend,” said Mr Tieu.
“Some thematic and exotic ETFs on the other hand are novel and narrow in nature and as we’ve seen this year, fare significantly worse when volatility really hits. Investors must understand the risks of thematic and exotic ETFs and their underlying exposures before they invest in the hype.”
The firm said that Australian fixed income ETFs experienced a resurgence during the quarter with a 148 per cent increase in inflows to $806 million.
Inflows to Australian equity ETFs were also up, rising by 57 per cent to $1.7 billion, while flows to international equity ETFs were down 70 per cent to $489 million.
“Australian equities saw significant demand this quarter as investors flocked back to familiar names,” Mr Tieu said.
“However, it’s a timely reminder that diversification not only across asset classes but regions too is important – no one country is free of economic or market risk, and there’s opportunity for investors to mitigate divergences in global economic momentum through international securities.”
Additionally, outflows were recorded for both cash ETFs (-$313 million) and global fixed income ETFS (-$36 million).
Vanguard said that it accounted for 67 per cent of all industry flows, up from 46 per cent in Q1.
Behind VAS, the Vanguard MSCI Index International Shares ETF (VGS) and Vanguard Australian Fixed Income ETF (VAF) were the firm’s top ETFs by cash flow, with $215 million and $147 million, respectively.
