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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. 

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