Following multiple years of steady growth, Morningstar’s annual Global Guide to Strategic-Beta ETPs report found that the broader Australian exchange-traded product (ETP) market had a tough 2022.
According to the report, ETP assets under management (AUM) fell 10.1 per cent to $89.4 billion to close 2022, which Morningstar said reflected both a market downturn and a 6.7 per cent depreciation of the Australian dollar against the US dollar.
Looking specifically at the Australian smart beta ETP market, however, things were a little steadier. There was a net increase of two smart beta ETPs for a total of 36 products, and unlike the broader ETP market, AUM grew 1.2 per cent to $9.1 billion.
While not a stellar result, given the contraction of the broader local market, the market share of smart beta ETPs grew from 9.1 per cent in 2021 to 10.2 per cent in 2022.
With the $1.5 billion in net inflows representing a 9.3 per cent jump from 2021, 2022 was also the second consecutive year that smart beta ETPs registered a gain in net flows.
Globally, as of 31 December last year, there were 1,384 strategic beta ETPs worldwide, with collective assets under management of approximately $1.53 trillion.
Morningstar explained that assets in these products fell 6.5 per cent in 2022 with top-line figures hindered by the retreat of the equity markets and foreign-exchange movements.
Moreover, it noted that a sharp slowdown in new launches and unrelenting fee competition are signs the space has reached maturity.
The Asia-Pacific region saw the strongest organic growth rate for smart beta ETPs of any region in 2022, at 18 per cent in 2022. Morningstar added that Australia, China, India, and Taiwan were the key growth drivers in terms of smart beta product offerings or assets in Asia-Pacific.
Despite dropping to third place in the region, Australia had a decent organic growth rate of 16 per cent in 2022 with $9.1 billion of smart beta assets. This represented 17.1 per cent of total market share for the Asia-Pacific region, while also making up 10.2 per cent of the broader Australian ETP market.
The report found that the Quality smart beta group remained the top choice among local investors amid inflation-induced uncertain macro conditions. At $3.2 billion, Quality-oriented ETPs represented 35.3 per cent of assets invested into local smart beta ETPs.
In terms of net inflows, Quality factor ETPs also handily outweighed other smart beta products, drawing $792 million. This accounted for more than half (53.5 per cent) of all flows into smart beta ETPs in Australia.
Coming in second with $358 million of net inflows were ETPs belonging to the Dividend-oriented smart beta group.
The VanEck MSCI International Quality ETF QUAL was the largest smart beta ETP in the Australian market, with $2.0 billion in assets.
Vanguard Australian Shares High Yield ETF VHY ($1.8 billion) and VanEck Australian Equal Weight ETF MVW ($1.2 billion) were the next two largest funds. Together, the three funds accounted for 54.4 per cent of all smart beta ETP assets in Australia.
With two of the top three smart beta ETPs in Australia, VanEck retained its market leadership across the board. The report said that as of December 2022, the issuer had a 48.7 per cent market share in smart beta ETPs with $4.4 billion in AUM across 13 products.