Australia’s ETFs sector edged closer to $150 billion in assets under management by the end of July.
Higher interest rates have spurred record investor inflows into fixed income exchange traded funds (ETFs) over the course of 2023, and that trend continued in July.
Just-released Australian Securities Exchange (ASX) data shows that, over the course of July, investors collectively channelled more than $551 million into Australian-listed ETFs that invest in Australian and global bonds.
That brought total year-to-date inflows into Australian and global fixed income (bond) ETF products to $3.05 billion – well above the $1.69 billion that was invested into Australian equity ETF products over the first seven months of this year.
Higher return expectations
In his Smart Investing article A brighter outlook for bonds published this month, Jean Bauler, Head of Fixed Income, Vanguard Asia-Pacific, noted that the expectations for higher bond returns are spurring strong investor inflows.
As of June this year, Vanguard’s median annualised return expectations for Australian and global bonds ex-U.S (hedged to Australian dollars) over the next decade were 3.4% to 4.4%, and 3.6% to 4.6%, respectively.
“When interest rates rise, bonds reprice lower and cash flows can then be reinvested at higher rates. Over time, the increased income from higher coupon payments will offset the price decline, increasing an investor’s total return,” Mr Bauler said.
The bulk of investor money is being directed into ETFs that invest in Australian government bond issues.
Australian fixed income ETF products received $461.7 million of investor inflows in July, with global fixed income ETF products receiving an additional $89.6 million.
This compared with $121.7 million of inflows into Australian equity ETF products. Meanwhile, after receiving outflows totalling more than $575 million over the first half of 2023, global equity ETF products attracted investor inflows of $453.7 million over the month of July.
Broad-based global equity ETF products received inflows of $360.7 million in July, global sector ETF products received inflows of $52.3 million, while global strategy ETF products received inflows of just $53,000.
ETFs sector reaches new heights
Australia’s ETFs sector as a whole attracted more than $1 billion of investor inflows in July, which helped to lift total sector assets under management to a new record of $149.4 billion.
This compared with $146 billion at the end of June and ETF sector assets under management of $130.4 billion at the start of 2023.
Vanguard remained the largest Australian ETFs issuer by assets under management at the end of July with $46.4 billion of assets (30.9% of total industry assets). Since the start of 2023 Vanguard has received $1.63 billion of total ETF cash inflows.
How to get the most out of ETFs
ETFs have become a hugely popular investment product around the world because they are relatively low cost and highly accessible to everyday investors.
For many new investors, or those who don’t have the time or resources to construct a portfolio using individual investments, ETFs can serve as the primary investment vehicle.
Feel free to contact our investment team to find out how we can help you reach your financial goals. Give us a call at 08 8231 4709 or send us an email at info@centrawealth.com.au.
Article courtesy of Vanguard.
