Local investors added $6.7 billion into ASX-listed exchange-traded funds (ETF) over July, up from $2.5 billion in June, Vanguard data has highlighted.
However, out of the some $17.55 billion in total ETF flows seen over the first seven months of 2024, almost $15 billion of this was to index ETFs – capturing around 86 per cent of total investor dollars.
“The remainder of ETF investor inflows up until the end of July, about $2.54 billion, largely reflected the recent conversion of an unlisted actively managed fund into an ETF product,” Vanguard said.
“This transaction alone added $2.49 billion.”
This comes despite a surge in active ETF dropping on the ASX in the first half of the year, accounting for 68 per cent of all new funds listed on the exchange.
Adam DeSanctis, Vanguard Asia-Pacific’s head of ETF capital markets, pointed out that the trend of index-tracking funds taking the lion’s share of flows is not a new one.
“In 2023, for example, index funds captured $16.17 billion of investor inflows versus the $1.89 billion of inflows in active funds,” DeSanctis said.
Looking at each strategy by asset size, Vanguard’s research showed that $168.2 billion was invested across 243 index-tracking funds by the end of July, accounting for 81 per cent of total industry assets under management (AUM).
By contrast, $40.55 billion – or 19 per cent – was invested across 114 active fund products.
“Growth in active assets under management has been quite staggered, mostly as a result of several large companies having chosen to turn their unlisted funds into ETFs. They are the same funds as before, but now they’re trading through an active ETFs structure,” DeSanctis said.
“It’s evident that passive index funds are where the bulk of the ETF industry’s cash flows are heading as more Australians use them as the core pillars of their portfolios to track the broad index returns from different markets,” he concluded.
Amid Australia’s burgeoning market, which now exceeds $200 billion in assets under management as of June, Global X product and investment strategist Marc Jocum has alternatively posited that the trend underscores the “high cost versus low cost” dilemma in ETF strategy selection, where higher costs historically align with managed funds.
Specifically, Jocum pointed out that over three-quarters of fund flows are directed towards products with management fees under 0.25 per cent per year, with an overwhelming 97 per cent flowing into products charging 0.5 per cent or less.
“That’s what Aussies love. Aussies love a deal, love the idea of controlling the fees,” he recently told InvestorDaily.
“I think Australian investors still have this perception, rightly so, in our opinion, that a lot of the simple arithmetic of the share market and some of the statistics behind it is that active managers still are struggling to outperform their benchmark, and to outperform a broader ETF, like a low-cost vanilla ETF.
“That’s where you’re seeing a lot more money going into just your very broad based, low-cost products. Because, naturally, that’s where a lot of people are thinking, ‘If I can get exposure to a certain asset class, why not control one of the areas that investors can control’, which is the fees they pay.”
