Investors have shown renewed interest in ETFs that invest in Australian shares while continuing to back bond ETFs.
Inflows into exchange traded funds (ETFs) that invest in Australian shares accelerated over the third quarter, marking a renewed focus by investors on Australian equities.
Australian Securities Exchange (ASX) and Vanguard data shows investors channelled over $1.85 billion into Australian equities ETFs during the three months to the end of September – more than the total amount invested into this category over the first six months of this year.
The Vanguard Australian Shares Index ETF (VAS), which provides exposure to the top 300 companies listed on the ASX, recorded inflows of $613 million, representing approximately 33% of total domestic equity ETF flows in Q3. This followed Vanguard’s reduction of the headline fee for VAS during the quarter.
Over the same period, investors added more than $1.3 billion of capital into Australian fixed income (bond) ETFs, exceeding the record $1.2 billion invested in this ETFs category over the second quarter.
When combined, the $3.1 billion of investor inflows into Australian equity ETFs and Australian fixed income ETFs accounted for about 66% of the $4.77 billion total invested into ASX-listed ETFs during the third quarter.
International equities ETFs also attracted around $845 million in new investment capital over the September quarter, and international bond ETFs a further $396 million.
The total amount invested into ETFs during the third quarter was more than double the $2.35 billion invested over the second quarter.
ETF inflows continue to surge
Total inflows into ASX-listed ETFs this year had exceeded $8.96 billion by 30 September, taking the Australian ETFs sector’s assets under management to more than $150 billion by the end of September.
On a year-to-date basis, to the end of September, more than $3.4 billion had been invested into Australian equities ETFs and more than $3 billion into Australian fixed income ETFs.
“Stronger flows into equity ETFs in Q3 suggests investor confidence is returning, likely a result of stabilising interest rates over the last few months in Australia,” says Adam DeSanctis, Vanguard’s Head of ETF Capital Markets, Asia-Pacific.
“That being said, markets are often navigating uncertainty so it’s important for investors to maintain long term perspective. Market volatility due to further rate changes, or heightened sell-offs due to geopolitical unrest, are usually short lived, while long term market performance remains resilient.
“Fixed income markets remain robust. While there has been downward pressure on bond prices in the near term, the silver lining is that bonds are expected to produce higher returns over the long term for investors with a sufficient investment horizon.
“Also, investors who have been impacted by recent sell-offs can reinvest in bonds with higher coupon payments given interest rates are likely to stay higher for longer.
“Interestingly, despite the pickup in equity flows, fixed income flows did not drop in Q3 – an encouraging sign that investors are also diversifying their portfolios and finding merit in a balanced asset allocation that includes both shares and bonds, and not simply fleeing to cash (the value of which erodes with inflation)”.
A decade of strong growth
Australia’s ETFs sector continues to go from strength to strength, with the recently released ASX Australian Investor Study 2023 finding that one-in-five (20%) of the 7.7 million on-exchange investors in Australia now hold one or more ETFs. This equates to around 1.5 million investors.
ETF assets have increased more than 15-fold from the $8.9 billion recorded in September 2013, and from a handful or products back then there are now more than 300 ETF products listed on the ASX.
“ETF awareness and uptake, particularly amongst retail investors in recent years, has grown exponentially and is now the investment of choice for many. This is particularly true for broadly diversified ETFs such as VAS, which, despite the rapid increase in thematic products, remains favoured by investors on the whole,” says Mr DeSanctis.
“At Vanguard, we continuously assess ways in which we can refine our product offering to make ETFs more accessible to everyday investors.
“This past quarter, we reduced the management fee for VAS from 0.10% p.a. to 0.07% p.a., and earlier this year, for VAF (the Vanguard Australian Fixed Interest ETF) from 0.15% to 0.10% to help investors keep more of their returns and achieve their long-term investment goals.”
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Article courtesy of Vanguard.
