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Young investors set to drive ETF market in 2017

Young investors set to drive ETF market in 2017

Exchange traded funds (ETFs) are expected to attract more young investors in 2017, with Millennials driving growth in the products over the next 12 months.

Millennials, often defined as born between 1980 and 2000, make up about a third of the world’s population currently.

Many will be entering their prime earning years and will soon be the largest client base in the financial markets, according to BetaShares managing director Alex Vynokur.

In Australia in 2016, funds under management in the ETF sphere have grown from $21bn to almost $25bn, with 40 new funds launched, bringing the total number of exchange traded products (ETPs) to just under 200.

ETFs are investment funds that trade just like shares, with good liquidity and high transparency. Prices and holdings are reported online from various providers on a daily basis and they can be a cost-effective way of diversifying your portfolio, regardless of your age.

The basket of underlying shares mimics the index in which the investment is held. Holdings can include Australian shares, bonds, commodities, international equities and fixed income, cash and currencies.

For example, the iShares Core S&P/ASX 200 ETF invests directly in the top 200 companies on the Australian stock exchange.

In one transaction you own the top 200 companies on the Australian Securities Exchange (ASX) and all the dividends and franking credits are distributed to the investor.

Global growth expected

Strong growth in ETFs is expected to continue with retail investors dominating the market in Australia, according to an EY (Ernst & Young Australia) report.

Assets under management globally are on track to reach US$6tn by 2020, according to the EY Global ETF Survey 2016 - Integrated innovation: The key to sustainable growth report.

Over the past decade ETF market growth has been, on average, 21.5% a year, according to EY.

BlackRock’s latest snapshot of the global ETP market pegs assets under management at around US$3.4tn at the end of November 2016.

A report from Deloitte - Millennials and wealth management – found that this age group prefers self-directed investments, with state-of-the-art technological platforms that allow them to access investments quickly and easily throughout the investment cycle.

ETFs “allow investors to back their own views across a number of asset classes and investment strategies”, said Vynokur.

He forecasts that by the end of 2017, ETF funds under management in Australia will have grown by more than 30%, to rise from $25bn to between $30bn and $33bn, with around 250 products available. 

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, including but not limited to Exchange Traded Funds given, 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.