Managers, advisers recognise ETF benefits

13-Jul-2017

By Daniel Paperny

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The acceleration in the uptake of exchange-traded funds (ETF) in Australia was the culmination of a growing recognition by fund managers and advisers worldwide of the benefits they provided investors, particularly when it came to constructing multi-asset portfolios, according to State Street Global Advisors (SSGA).

During a media teleconference yesterday, State Street Global Advisors vice president and head of ETF research Matthew Arnold noted a move by financial planners away from unlisted trusts over the next few years could prove to be one of the catalysts behind the growing maturation of Australia’s ETF sector, which currently had over $29 billion in assets under management (AUM).

But Arnold said the acceleration would be further driven by the success of big brand fund managers in ETFs abroad that had moved away from mutual funds and realised the need to cater for a burgeoning investor appetite for a more low-cost and transparent investment vehicle.

“I think there is at least some acceptance that ETFs are probably a better structure than mutual funds and that they offer on-exchange trading, full transparency [and so forth],” he said.

“We’ve seen fund managers around the world, particularly in the United States, increasingly in Europe and Australia as well, turn around and say they have to have an ETF strategy of sorts.

“Clearly investors like using ETFs, so they’re saying ‘let’s look at what we do in a mutual fund format and see if we can package it as an ETF’.”

Since 2008, mutual fund investors in the US had liquidated more than US$800 billion of their holdings in actively managed equity mutual funds and purchased around US$1.8 trillion of ETFs.

Arnold noted ETFs played a pivotal role in simplifying portfolio asset allocation for investors and giving them “more granular” access to asset classes.

“Australian IFAs (independent financial advisers) and institutional investors are starting to use ETFs to build these multi-asset portfolios and that’s following on from a trend we’re seeing in the US and Europe,” he noted.

The Australian market was increasingly being recognised as a leader in active management and, in terms of AUM, had one of the highest actively managed ETF markets in the world by total assets, he added.

“That is clearly a driver of growth for ETFs in Australia as a whole and a lot of these fund managers, they’re not competing in the pure passive space,” he said.

“It’s hard for others [and new entrants] to compete with us, in addition to the likes of Blackrock and Vanguard, because it is such a scale business.”

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