The Rise of ETFs in Australia

The presence of exchange-traded funds (ETFs) is mounting in Australia. The total funds under management (FUM) grew 36% to AU$199 billion in the 12 months ended 30 June 2024. During this period, the average number of transactions also increased significantly by 50%. 

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Traction is growing beyond Australia, too. On the global stage, ETFs are expected to reach US$4.5 trillion in Europe and US$25 trillion worldwide by 2030. 

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Given the accelerating global momentum and notable domestic growth, it’s necessary to understand these surges. Read on to explore what you need to know. 

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Why Are Australians Attracted to ETFs?

Active ETFs are gaining traction because they combine the lower fees of passive investments with the potential to outperform active funds. They offer key advantages for investors and financial advisers:

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• Lower management fees.
• Portfolio diversification.
• Accessibility.
• Liquidity.

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Andrew Campion, General Manager of Investment Products and Strategy at ASX, remarks, “We’re seeing many more active ETFs coming to market, offering investors more tailored investment portfolios.” So, where is this growth coming from?

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What’s Driving ETF Growth in Australia?

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• Product innovation and easing regulation. Declining regulatory roadblocks account for the bulk of ETF launches in Australia, the U.S. and Canada. To stay competitive, fund managers and issuers must focus on creating novel ETF strategies that account for evolving investor needs and market trends. 
• Consumer demand for fixed-income and digital asset ETFs is particularly high among younger investors. A young audience indicates potential for a long-term trend. Advisors might consider prioritising fixed-income ETFs, particularly given the local interest-rate environment and the phase-out of certain hybrid securities.
• The continued reduction of management fees by ETF issuers is increasing the attractiveness of the investment vehicle. This encourages advisors to consider economies of scale, operational efficiency and product differentiation beyond price. 
• Greater distribution and access to a broader audience: Being quoted on a securities exchange instantly provides access to a broader audience of investors, with quoted products being added to advisors’ approved product lists more easily. This makes it easier for advisors to recommend ETFs as part of a client’s investment portfolio. 

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Looking Forward: What Can We Expect Next?

As the number of investments grows, ETF popularity will continue to grow with it. In 2023, 7.7 million Australians invested in exchange traded investments and 1.5 million held at least one ETF. These figures show a growing domestic trend.

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Innovation in ETF products is likely to be a differentiator amid increasing competition. Driving increased allocations will require learning about ETF holdings and strategies, while empowering clients with education.

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As ETF attention continues to surge, it’s imperative to plan now to keep pace with the demand. Get in touch with PMC Legal to learn how you can launch an ETF (active, passive or dual access) or convert an existing strategy into an ETF-ready offering.

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