ETF investments set to top $30bn

Australia's already-booming exchange-traded funds sector is set to enjoy even stronger growth through 2017, with total investments expected to top $30 billion, according to a new report.

The ETFs report just released by BetaShares and Investment Trends is tipping strong demand from SMSF and retail investors following a 31 per cent increase in ETF inflows in the 12 months to September 2016.

Indeed, more and more self-directed investors are using separately managed accounts (read Investors are swarming to separately managed accounts) to invest across a range of different ETF products and portfolios.

The report also found that 70 per cent of Australian financial planners are now recommending ETFs as a key investment product for their clients.

While ETF investors are on average 51-years-old, including a third who are already retired, the average age of investors who invested in ETFs for the first time in the last year is 39 years, significantly lower than those who first started using ETFs five years ago (58).

Furthermore, millennials are expected to be significant drivers of future ETF growth.

Strong demand from retail and SMSF investors

Repeat investment into ETFs is very high with 70 per cent of investors indicating they would consider reinvesting in ETFs in the next 12 months.

Interestingly, the majority of investments into ETFs represents new money into the industry, with 56 per cent of ETF investors buying the products with incremental investment monies, rather than decreasing their allocation to direct shares or managed funds.

The number of SMSFs holding ETFs has grown in line with the increase in the number of ETF users, with 38 per cent of ETF investors holding ETFs through their SMSFs. This highlights the continued importance of this investor class in driving industry growth.

SMSFs who use ETFs typically cite a wider range of reasons for using them, especially for access to overseas markets and access to specific investment types.

Diversification remains the primary driving factor – with 72 per cent of investors citing this as a reason for using ETFs.

Financial planners can tap into client demand for ETFs

Use of ETFs is widespread among financial planners, with 7500 or 43 per cent of Australia's financial planners currently advising on ETFs. This number looks set to grow, with seven out of 10 planners currently recommending ETFs or intending to do so in the future.

More encouragingly, financial planners who do use ETFs are using these products more extensively for new inflows, and plan to continue to grow their use.

In terms of motivations for using ETFs, financial planners most often cite low cost as a reason for recommending these products, with diversification the second most commonly cited driver.

There remains significant opportunity for advisers to tap into consumer demand for ETFs, with only 21 per cent of current ETF investors saying an adviser played a role in their most recent ETF investment.

Advisors also have a strong interest in actively managed ETFs with 52 per cent indicating they would like to use these products in the next 12 months if available to them.

Outlook

The report projects a record 315,000 Australians will be invested in ETFs by September 2017.

“The ETF industry is set to continue on its growth path, and is following in the footsteps of more mature ETF markets around the world,” said BetShares managing director Alex Vynokur.

“One of the most dynamic investment vehicles available, we are confident that investors will continue to tap into ETFs for a broader range of investment needs. In line with the growth we are currently seeing, BetaShares projects the industry will hit $30-33 billion in funds under management, with approximately 250 exchange traded products, by the end of 2017,” Mr Vynokur said.