Where next for retail ETF growth?
Global ETF service provider State Street has flagged the rise of retail demand for ETFs, with almost three-quarters of Australian ETF demand coming from the retail channel.
In the firm’s Mid-year Global ETF Outlook review, it assessed whether predictions made by State Street at the start of 2024 were proving to be correct.
The four megatrends it forecast were:
- Continued innovation by providers and investors.
- A growing preference of younger cohorts for ETFs over mutual funds.
- Expanded availability of active ETFs across markets and issuers.
- A solid majority of investors indicating that they will increase their portfolio allocations to ETFs during the next two to three years.
“Markets in Australia and Taiwan are seeing expanded retail adoption, with over 73 per cent of Australia’s ETF investors coming from the retail channel and 75 per cent of all Taiwanese investors leveraging ETFs in their portfolios.”
This figure is attributed to Computershare which also found 61 per cent of these retail investors have a portfolio value of less than $10,000.
The growth in retail uptake has also been attributed to demand from Millennial and Gen X investors who favour the asset over mutual funds.
Overall direct retail ownership of ETFs now exceeds US$2 trillion in the US and the next step, State Street said, will be for the expansion of retail ownership via ETF savings plans and models. This is already coming through in Europe with commission-free and robo models emerging in Austria, Germany, France, Spain and the UK, but is yet to be seen in Australia.
Looking ahead, research by Trackinsight has also found the vast majority of ETF investors say they are planning to increase their allocations in the future, and State Street confirmed this.
This is particularly the case for active ETFs which account for US$923 billion and US$154 billion in net inflows since the start of the year. This puts them on track for over US$300 billion for the year, more than double the volume of inflows seen in 2023.
State Street said: “So far in 2024, we are servicing more than a dozen clients that have launched or are in the process of launching ETFs for the first time, or in a new jurisdiction for the first time.”
APAC predictions
Looking at specific Asia-Pacific ETF market predictions, there are two which focus on Australia.
One prediction at the start of the year is that Australia will see 10 new issuers leveraging a dual registry/share class, and said this is “on track” as of September, with five firms having launched this option since the start of the year.
The said firms are Claremont, Franklin Templeton, Lazard, Russell Investments and Triple Eight Capital.
The second prediction has forecast that the first spot crypto ETF will be launched in Australia and Hong Kong. So far, Australia has three spot crypto ETF launches this year, far exceeding State Street’s target of one, and Hong Kong has launched four.
This is the only prediction for Asia-Pacific that has already surpassed expectations, it said.
AUTHOR
Laura Dew
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