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Bumper year for ETFs despite volatility

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Vanguard this week released its ETF Quarterly Report highlighting some of the key trends emerging from the fast-growing ETF sector. The analysis covered every exchange-traded fund on offer, including the reasonably new “active ETFs” such as those issued by Magellan, Munro Partners and Loftus Peak.

  • It was another quarter of records, with the sector seeing another $7.1 billion of inflows in the December, following $4.9 billion in the three months to September. That took the total to $20.2 billion for the entirety of 2020. This occurred with the backdrop of incredible volatility and offered investors a first-hand insight into the importance of patience and remaining invested.

    By far the biggest beneficiary was equity markets, with international equity focused ETFs seeing 46 per cent of the $7.1 billion and domestic equities 28 per cent. Fixed income strategies, focused around government bonds and cash alternatives were next in line. Vanguard continued its recent dominance, with the predominantly passive investment options garnering 30 per cent of quarterly inflows, the S&P/ASX 200-tracking Vanguard Australian Shares Index (ASX: VAS) receiving $2.3 billion in new capital alone in 2020.

    The leaderboard continues to favour the early movers and trillion-dollar managers, with Vanguard topping the table at $25.8 billion, ahead of iShares at $19.14 billion. Magellan’s recent decision to convert many of its strategies to active ETFs has seen the local firm move higher, with $14.4 billion now ahead of Betashares growing stable or thematic and broad-based strategies.

    There are a number of broader trends powering the sector and contributing to the continued dominance of the big-name managers. On the one hand, most fintech applications construct off the shelf ‘balanced’ portfolios at the lowest cost possible, favouring the likes of Vanguard, State Street and iShares and their core index exposures.

    On the other hand, financial advisers and self-directed investors have become more focused on using ETFs to gain exposure to fast growing themes, sectors or alternative asset classes. The specialists in this area of the market are ETF Securities and BetaShares, which offer a wide range of funds targeting strategic asset classes ranging from biotech to various technology sectors. This allows investors to implement tactical allocations to markets, sectors or companies without the concentration risk that can be associated with traditional market-cap-weighted indices.

    The ETF Securities Physical Gold ETF is expected to see significant growth in 2021 and beyond after its recent addition to the AustralianSuper Member Direct option.


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