The trends defining Aussie ETFs in 2H24
A new Global X report has highlighted three key trends that will unfold in the Australian exchange-traded fund (ETF) industry in the second half of this year.
In July, data released by the ASX and Vanguard saw the Australian ETF industry’s assets under management surpass the $200 billion mark as at 30 June 2024.
According to Global X, the market has expanded by 37.3 per cent over the past year to $206.2 billion across 380 products. This was underpinned by more than $21.4 billion in net inflows, positive market movements, and several unlisted active funds converting into active ETFs.
“It’s the strongest start ever for the Australian ETF market. In fact, we could surpass the calendar year record of $23.6 billion set in 2021, and potentially reach an industry valuation of $1 trillion by 2030 if this momentum continues,” commented Marc Jocum, product and investment strategist at Global X.
Off the back of this significant growth, the investment strategist identified three key areas to watch within the Australian ETF industry over the next six months.
“Artificial intelligence (AI), regional pockets of investor interest, and fixed income are the three main trends which we expect will accelerate into the second half of 2024,” Jocum pinpointed.
Artificial intelligence
The growing momentum seen in AI will continue to be captured by investors through the ETF investment vehicle, the report identified.
“Investors may choose to focus on the broader AI ecosystem, including technology, semiconductors, infrastructure, and data centre renewable energy sources.”
Manny Damianakis, head of sales at Global X, previously discussed the popularity of thematic ETFs, such as AI-focused products. He explained: “AI is not a flash in the pan, it’s a structural shift which will change industries and life as we know it. Australian investors can use [the ETF] to invest in leading companies across the value chain of this megatrend which are positioned to benefit from AI adoption and innovation.”
Regional pockets of interest
Moreover, ETFs based in Europe and India are projected to enjoy strong growth in the second half of the calendar year.
Jocum said: “Although the US has outperformed other global regions since the start of the 2010s, other countries and regions may begin to catch up. European ETFs may attract more interest due to attractive valuations and similar sales growth profiles, while India continues to thrive and could overtake China as the main emerging market in investor portfolios.”
Fixed income
The Reserve Bank of Australia is expected to continue holding higher interest rates to combat persistent inflation, compared to other central banks across the globe that have begun their easing cycle.
“If this scenario eventuates, it makes fixed income securities with yields higher than traditional government bonds or term deposits an attractive proposition. With Australia’s share market dividend yield declining over the past year, high-quality fixed income securities offer opportunities to enhance portfolio income.”
Jocum anticipates continued strong momentum in fixed income flows throughout the remainder of 2024. Last year, bond ETFs were one of the most popular asset classes as they captured 37 per cent of annual net flows.
“Investors, all of a sudden, are drawn to fixed income because the income really is back in fixed income,” he recently told Money Management.
AUTHOR
Jasmine Siljic
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