The funds under management (FUM) of Australia’s ETF industry grew 33 per cent or $43.7 billion in 2023 to end the year at an all-time high of $177.5 billion, according to new figures released by Betashares.
This came after the ETF industry fell by 2 per cent or $3.2 billion in 2022.
Two-thirds of 2023’s growth, the firm said, could be attributed to market appreciation, with the remainder deriving from investor inflows and unlisted fund conversion activity.
The ETF industry net flows reached $15 billion last year, 12 per cent higher than the $13.5 billion received in 2022.
However, in what Betashares has termed a “changing of the guard”, unlisted funds sustained net outflows of $36.9 billion, marking the worst year on record for Australian managed funds.
According to Betashares, this now means that the last four out of five years have seen ETFs surpass unlisted funds in net flows.
“Most strikingly of all, looking across a longer period – since the launch of the Australian ETF industry in 2001, cumulative net flows in the Australian unlisted managed funds industry are now negative,” highlighted Betashares chief commercial officer Ilan Israelstam.
“This clear investor preference for ETFs, plus the increasing ‘conversion’ activity we’re seeing of unlisted managed funds into active ETFs, represents a significant ‘changing of the guard’ in the Australian asset management industry,” he added.
Strong trading values continued during 2023, with the annual ASX ETF trading value reaching $115 billion, just shy of the current record of $117 billion reached in 2022.
In terms of product types, last year was all about passive investing, with approximately $1 billion in outflows recorded in active ETFs, meaning more than 100 per cent of the flows came from passive products in 2023.
“This trend is particularly striking given the large number of active ETF launches, with the actual flow activity seemingly not dissuading managers from launching active ETF classes of their unlisted funds,” Mr Israelstam highlighted.
With investors seeking out a more defensive stance in their asset allocations, together with elevated income and yield opportunities, fixed income ETFs were the number one broad category for inflows in 2023, standing at $5.3 billion ($3.6 billion in 2022).
Australian shares ETFs followed with $5.2 billion in net inflows, up from $4.4 billion the year prior.
However, Betashares said that international equities had a comparatively quiet year, receiving $2.9 billion of net inflows, but predicted that this would change in 2024 as the rate environment shifts. It soon expects investors to “adopt more meaningfully growth-oriented exposures typically found in global equities ETFs going forward”.
Moreover, the firm has forecast that the total FUM of the Australian ETF industry will exceed $200 billion at the end of this year, with the potential to reach $220 billion depending on market conditions.
“In terms of 2024, we believe that the industry will continue to benefit from increased investor adoption and inflows combined with positive markets,” Mr Israelstam said.
