Australian ETF industry to grow to $100b
Exchange traded funds (ETF) provider, iShares has said their business is riding high as the booming ETF industry is set to quadruple to $100 billion.
Head of iShares Australia, Jon Howie, said the Australian ETF industry currently accounts for one per cent of the retirement pool ($2 trillion) and he expects it to grow to five per cent, which will bring Australia on par with the US and Europe.
He said there would be a strong shift in the market over the next six months, with even more investors using ETFs and more product issuers supplying global ETFs.
"The focus for the past 12 months has been continuing to build the ETF franchise in Australia to meet what we think is a rapid development in the evolution of the ETF", Howie said.
He said, more advisers were incorporating ETFs into the core of their client's portfolios "because of the low cost and the liquid nature of the instrument".
He projected that some clients would also look to "replace some active managers with exchange traded funds, in some cases to bring down the cost, but also to improve performance in some cases".
With low global interest rates to continue, investors are increasingly looking at non-traditional investments for income, steering away from traditional "Australian equities to generate income from franking credits from dividends", he said.
Howie said investors were looking at global assets, such as global fixed income, global bonds "which in some cases pay relatively attractive yields."
For advisers, it means they may need to educate their clients about the benefits of fixed income in a portfolio, so they can access "as global set of opportunities, rather than just term deposits, or Australian equities which they may have accessed in the past for income", Howie said.
He said a social dilemma and trend he had seen, was the increasing pressure on advisers to deliver better services to clients, and that fund managers were under more pressure too to offer better products and that ETFs were be a big part of that solution.
"What we see is actually clients are combining ETFs with other ways to invest. So with actively managed funds, or with direct securities, to actually create, for them what is the optimal portfolio", he said.
"So clients can go and buy global bonds, global equities potentially, other types of exposures, all through the ASX. Through their brokerage account using Australian dollars. They do not have to go and look offshore for those securities."
Howie noted another key trend was that not only were advisers better educated about investment fundamentals and portfolio construction, but they were increasing choosing to outsource that part of their business to an ETF provider.
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