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Exchange traded funds growing rapidly in popularity

Exchange traded funds growing rapidly in popularity

Australian investors are increasingly turning to exchange traded funds (ETFs) for simplicity, transparency, low cost and diversification.

The exchange traded funds (ETF) market is expected to reach US$7.6 trillion by the end of 2020, according to a new report from EY (Ernst & Young).

Through interviews with ETF market makers, service providers and promoters, the EY Reshaping around the investor - Global ETF Research 2017 report also found that it is expected the majority of asset managers will offer ETFs over the next five years.

“Global ETF assets, which totalled just US$417bn in 2005, reached US$4.4 trillion by the end of September 2017 – a cumulative average growth rate (CAGR) of around 21%,” said the report.

What’s happening in Australia?

The global trend of growth is reflected in the Australian market, according to Antoinette Elias, EY Oceania Wealth and Asset Management Leader.

“In Australia, we continue to experience significant growth, with the ETF market capitalisation increasing by 39% in the past 12 months – to $33.3bn as at 31 October 2017,” says Ms Elias.

“The local ETF market is taking a growing share of the traditional managed funds space and continues to be retail investor driven, rather than institutional. Access to broader asset classes and international exposure is making ETFs increasingly attractive to retail investors.”

What are the considerations?

Despite the current level of growth of ETF investment and positive forecast for the future, the report urged due diligence before jumping in.

“Australian investors are increasingly turning to ETFs for simplicity, transparency, low cost and diversification, and due to easy access. However, education is key to ensure that investment decisions are well informed and based on an underlying understanding of ETFs, and not blindly led,” said Rita Da Silva, EY Oceania ETF Leader.  

“The ETF industry needs to address market and regulatory threats and be willing to respond by developing new products and modifying existing ones. A combination of local understanding and global insights can help investors understand the overall business environment and how this will impact investor journeys.”

This article is intended to provide general information of an educational nature only. It does not have regard to the financial situation or needs of any reader and must not be relied upon as financial product advice. Investors should consult a range of resources, and if necessary, seek professional advice, before making investment decisions in regard to their objectives, financial and taxation situations and needs because these have not been taken into account. Any securities or prices used in the examples given, including but not limited to Exchange Traded Funds, are for illustrative purposes only and should not be considered as a recommendation to buy, sell or hold. Past performance is not indicative of future performance. Commonwealth Securities Limited ABN 60 067 254 399 AFSL 238814 (CommSec) is a wholly owned but non-guaranteed subsidiary of the Commonwealth Bank of Australia ABN 48 123 123 124 AFSL 234945 and a Participant of the ASX Group and Chi-X Australia. The commentary provided from external companies that are not a member of the Commonwealth Bank of Australia Group of Companies (the CBA Group) does not represent an endorsement, recommendation, guarantee or advice in regard to any matter. Neither Commonwealth Securities Limited nor members of the CBA Group accept any liability for losses or damage arising from any reliance on external companies and their products, services and material.