ETFs to surge in 2011: Russell

The Australian exchange traded fund (ETF) market is set to grow from less than $4 billion in assets under management in December 2010 to more than $6 billion in 2011, with a proliferation of products and innovation, according to Russell Investments.

Driving the increase, providers will take advantage of a broader understanding of ETFs within the investment community, while more flexible regulatory conditions will help global providers enter the Australian ETF market, according to an analysis of ETF market trends from Russell.

Three new ETF providers and up to 15 new products will hit the Australian market in 2011, with more variety on offer in terms of options and asset classes, Russell stated.

ETFs will see continued popularity with self-managed super fund investors and are likely to win more acceptance from advisers and investment platforms in 2011, and also make inroads into institutions, said Amanda Skelly, director of ETF product development at Russell Investments.

The trend will be towards the development of more focused, targeted products — across different assets such as bonds and currency for example — while equity ETFs will target specific sectors and sub-sectors, Russell stated.

There should also be new implementation methods for ETFs, such as derivatives-based approaches, where a greater portion of the ETF is invested in instruments such as futures, forwards and swaps, according to Russell.

Potential exchange mergers such as the proposed Singapore Stock Exchange takeover of the Australian Securities Exchange would improve secondary market liquidity and product diversification as well as cost and operational efficiencies, Russell stated.

“However, if the takeover does not go ahead, Asian-based exchanges will continue to expand their ETF capabilities, attracting larger institutional investors, which may potentially limit the longer term growth of ETF assets in Australia,” Skelly said.