ETFs are now the fastest growing investment sector in Australia with a market capitalisation of $19.23 billion as of 30 August 2015.
Australians are known worldwide as avid share investors. In fact, Australia tops the list of countries with the highest share ownership in the world, alongside Hong Kong. According to the 2014 Australian Share Ownership Study, an estimated 6.48 million Australians – 36 per cent of the adult population – own shares. We beat Britain (15 per cent) and the US (14 per cent) hands down when it comes to share ownership.
As Australian investors look to diversify their investment portfolio and search for other growth opportunities they are turning to exchange-traded funds (ETFs) which offer many of the same benefits as shares. In fact, ETFs are now the fastest-growing investment sector in Australia with a market capitalisation of $19.23 billion as of 30 August 2015.
According to the ASX, ETF trading in Australia has grown by 62 per cent in the past two years alone. And the market is expected to double again in the next two years according to market estimates.
The benefits of ETFs
Exchange-traded funds are listed funds that track the price of an index, commodity or a basket of assets, and they are traded like shares on a stock exchange. Unlike managed funds that are actively managed and try to outperform an index or underlying asset, an ETF simply tracks the performance of an index, commodity or asset.
ETFs can offer investors easy access to local and overseas shares, commodities, foreign exchange and other asset classes like infrastructure. For retail investors wanting to diversify beyond traditional shares and property portfolios, ETFs can provide access to investments once available only to institutional investors.
The other main benefit of ETFs for Australian investors is their relatively low cost when compared to actively managed funds, or the cost of setting up a special foreign currency or commodities account.
What types of investors suit ETFs?
As ETFs behave like shares, they may attract investors with several years’ experience investing in equity markets. ETFs may also suit investors who want to gain exposure to other asset classes such as commodities, foreign exchange and interest-rate products such as corporate and government bonds.
Similarly, ETFs may be a good option for those wanting exposure to international markets such as the US, Europe and Asia. Overseas markets may provide greater growth opportunities given their wider array of investment assets compared to Australia.
Given the current low-growth economic environment across the globe, Australian investors are keen to gain exposure to other markets that will boost investment returns. While returns in equity markets may remain subdued for the next few years, there are market sectors and other asset classes that can deliver better returns.
By using ETFs, Australian investors can diversify their portfolio, access international markets and still maintain control of their investments.
ANZ launches ETFs to meet investor demand
In response to the growing demand from investors and intermediaries, ANZ has partnered with ETF Securities to form ANZ ETFS Management (AUS) Limited (ANZ ETFS) to launch six new ETFs, which are now available through the ASX. The move makes ANZ the first of the ‘Big Four’ Australian banks to enter the growing ETF market.
ANZ ETFS’ equity ETFs provide investors access to Australian and US markets through some of the most popular and liquid indices, with a focus on domestic and overseas yields to help boost returns for local investors. These track the S&P/ASX 100 Index; S&P 500 Low Volatility High Dividend Index; and the S&P/ASX 300 Shareholder Yield Index.
Also included are three physically-backed ETFs that will give investors access to the foreign exchange and commodities markets. These include a US dollar ETF, an offshore Renminbi (Chinese Yuan) ETF and a gold ETF, with the gold bullion stored at ANZ’s Singapore vault.
“We have seen fantastic growth in the ETF sector over the past few years, and it’s a great time for ANZ to join the ETF market as this demand grows,” said ANZ ETFS business development manager Kanish Chugh.
“ANZ ETFS’ new product suite was designed to give investors access to markets and instruments that were quite hard to reach before. By investing in ETFs, Australian investors gain low cost, simple exposure to the US market, the currency market and commodities market,” he added.
Lower transaction costs, transparency, ease of access (particularly for harder-to-reach markets and investment classes) are some of the obvious benefits from ETFs according to Mr Chugh.
“For investors and advisers alike, ETFs can provide portfolio diversification and lower the overall cost which can definitely boost their returns,” he said.