Integro Private Wealth / Farm Weekly
Access to financial markets has never been so easy as technology and product innovation open up new routes for retail investors.
In particular, exchange-traded funds (ETFs) have emerged as the vehicle of choice for retail investors across the world.
Last year, for example, the Australian ETF sector hit an all-time high of almost $180 billion, according to a Betashares report.
Betashares, one of the leading ETF providers in the local market, also noted that the traditional unlisted fund sector has gone into reverse while the new investment product style accelerates.
“Most strikingly of all, looking across a longer period – since the launch of the Australian ETF industry in 2001, cumulative net flows in the Australian unlisted managed funds industry are now negative,” the report says.
“This clear investor preference for ETFs, plus the increasing ‘conversion’ activity we’re seeing of unlisted managed funds into Active ETFs, represents a significant ‘changing of the guard’ in the Australian asset management industry.”
ETFs still represent only a tiny proportion of the total managed funds market in Australia – measured at over $4.2 trillion at the end last September by the Australian Bureau of Statistics – but the growth trajectory is undeniable.
And that growth is mostly based on sound reasons. Compared to unlisted counterparts, ETFs do offer investors almost immediate on- and off-ramps to multiple asset classes for usually cheaper headline fees.
Historically, in fact, ETFs were designed in the 1990s as an efficient method for institutional investors to build diversified portfolios tracking mainstream share indices.
The original purpose still stands for retail investors: indeed, the most popular ASX-listed ETFs do follow broad Australian and global equity benchmarks.
But the explosion of product choice can lead investors astray. For example, the Betashares report counts 367 exchange-traded products on the ASX.
Globally, the number of ETFs and the like hit a record of almost 12,000, holding more than US$11.7 trillion between them.
The wide product choice will inevitably tempt some investors to take a spin in the new high-speed fund or, perhaps, venture offroad into exotic, or non-existent, asset classes.
We believe that ETFs can have a place in diversified portfolios constructed (with professional investment advice) to meet the specific needs of individuals, trusts, self-managed superannuation funds or family offices etc.
However, flimsily made ETF portfolios won’t offer an easy ride through markets: investors need well-tuned portfolios with shock absorbers to handle the long road ahead.
Chat to your Integro adviser today about incorporating ETFs into your portfolio and to learn more about the different types of ETFs that are available. For new clients, please email our team at: [email protected].
You can also grab yourself a copy of Farm Weekly to read more insights from our Managing Partner, Justin Gilmour, every fortnight.
