Register For Our Mailing List

Register to receive our free weekly newsletter including editorials.

Home / 185

Exchange traded products in 2016 and a look ahead

With the silly season upon us, it’s the perfect time to reflect on 2016. It’s been a big year for Exchange Traded Products (ETPs) in Australia and around the world, and it’s worth looking at likely developments as we move into 2017 and beyond.

Australia

At the beginning of the year, the ETP industry had about $21.4 billion in assets under management (AUM) across 169 funds. As at the end of October 2016, ETPs had grown to $24.4 billion in AUM across 199 products. An impressive 30 funds have been launched this year as at October end, and there are currently 5 ETPs that have over $1 billion of AUM in the local market.

There have been some major shocks to the global markets in 2016, but the Australian share market is marginally higher than at the beginning of 2016 and may finish even stronger if the late momentum carries on until the end of the year.

Source: Bloomberg

In addition to the 16% AUM growth in ETPs for the last 12 months to October 2016, we also saw record high trading activity levels, up 18% on the previous year. The three biggest increases in AUM occurred across Australian equities, international equities and fixed income products. Strong inflows have continued in reaction to President-Elect Trump’s business-friendly stance and expansionary fiscal policy. There were very little outflows overall for the year, but what did flow out was mostly Asian equities (ex-Japan).

Global

The global ETP industry also produced stellar results for the year to date, although obviously on a much larger scale. According to ETP industry researcher, ETFGI, global ETP assets reached a record US$3.4 trillion at the end of the Q3 2016, about 10% larger than the global hedge fund industry (US$2.9 trillion), after experiencing 32 consecutive months of net inflows.

In the first three quarters of 2016, ETPs saw net inflows of US$238 billion, which is down slightly from the US$252 billion gathered at the same point in 2015. Fixed income ETPs gained the largest net inflows with US$101 billion, which is a record level of YTD net new assets and significantly above the prior YTD record of US$64 billion set in 2015. After fixed income, the next biggest categories for inflows were equity ETPs with US$86 billion and commodity ETPs with US$37 billion.

As at the end of October 2016, there were 6,526 ETPs (+511) issued by 284 providers, being traded on 65 exchanges across 53 countries. These international numbers are truly mind-boggling.

The future

Over 2017, the Australian ETP market is likely to see growth in:

  • Factor based products: not exactly active, and not just passive, these ETPs weight by factors other than market cap with the intention of producing alpha by breaking the link between price and portfolio weight.
  • Hedged exposures: whilst the AUD has proven resilient over the year, not dropping close to most analysts’ expectations, money has been made on unhedged exposures. In regions such as Europe and Japan, equity markets have historically performed best when their currency is falling, so it is prudent to take a look at exposures hedged and unhedged and select what suits. More options will allow exposures both hedged and unhedged in the Australian market.
  • Active exchange traded managed funds: with the success and acceptance of these products in 2016, many more active managers will consider listed versions of their funds in 2017.
  • Fixed income products: despite new products, there is room for more with different types of risk.

It was a year of ups and downs for markets generally, but ETPs continued to grow in size and range. Australia has a lot of catching up to the rest of the world in the variety of ETPs, so expect many new products in 2017.

 

Justin Arzadon is Associate Director, Distribution at BetaShares. This article is general information and does not consider the specific circumstances of any individual. BetaShares is a sponsor of Cuffelinks.

 


 

Leave a Comment:

RELATED ARTICLES

The challenges of building a lazy portfolio

Where is peak ETF?

ASA’s view on the banning of LIC commissions

banner

Most viewed in recent weeks

16 ASX stocks to buy and hold forever, updated

This time last year, I highlighted 16 ASX stocks that investors could own indefinitely. One year on, I look at whether there should be any changes to the list of stocks as well as which companies are worth buying now. 

UniSuper’s boss flags a potential correction ahead

The CIO of Australia’s fourth largest super fund by assets, John Pearce, suggests the odds favour a flat year for markets, with the possibility of a correction of 10% or more. However, he’ll use any dip as a buying opportunity.

2025-26 super thresholds – key changes and implications

The ABS recently released figures which are used to determine key superannuation rates and thresholds that will apply from 1 July 2025. This outlines the rates and thresholds that are changing and those that aren’t.  

Is Gen X ready for retirement?

With the arrival of the new year, the first members of ‘Generation X’ turned 60, marking the start of the MTV generation’s collective journey towards retirement. Are Gen Xers and our retirement system ready for the transition?

Why the $5.4 trillion wealth transfer is a generational tragedy

The intergenerational wealth transfer, largely driven by a housing boom, exacerbates economic inequality, stifles productivity, and impedes social mobility. Solutions lie in addressing the housing problem, not taxing wealth.

What Warren Buffett isn’t saying speaks volumes

Warren Buffett's annual shareholder letter has been fixture for avid investors for decades. In his latest letter, Buffett is reticent on many key topics, but his actions rather than words are sending clear signals to investors.

Latest Updates

Investing

Designing a life, with money to spare

Are you living your life by default or by design? It strikes me that many people are doing the former and living according to others’ expectations of them, leading to poor choices including with their finances.

Investment strategies

A closer look at defensive assets for turbulent times

After the recent market slump, it's a good time to brush up on the defensive asset classes – what they are, why hold them, and how they can both deliver on your goals and increase the reliability of your desired outcomes.

Financial planning

Are lifetime income streams the answer or just the easy way out?

Lately, there's been a push by Government for lifetime income streams as a solution to retirement income challenges. We run the numbers on these products to see whether they deliver on what they promise.

Shares

Is it time to buy the Big Four banks?

The stellar run of the major ASX banks last year left many investors scratching their heads. After a recent share price pullback, has value emerged in these banks, or is it best to steer clear of them?

Investment strategies

The useful role that subordinated debt can play in your portfolio

If you’re struggling to replace the hybrid exposure in your portfolio, you’re not alone. Subordinated debt is an option, and here is a guide on what it is and how it can fit into your investment mix.

Shares

Europe is back and small caps there offer significant opportunities

Trump’s moves on tariffs, defence, and Ukraine, have awoken European Governments after a decade of lethargy. European small cap manager, Alantra Asset Management, says it could herald a new era for the continent.

Shares

Lessons from the rise and fall of founder-led companies

Founder-led companies often attract investors due to leaders' personal stakes and long-term vision. But founder presence alone does not guarantee success, and the challenge is to identify which ones will succeed in the long term.

Sponsors

Alliances

© 2025 Morningstar, Inc. All rights reserved.

Disclaimer
The data, research and opinions provided here are for information purposes; are not an offer to buy or sell a security; and are not warranted to be correct, complete or accurate. Morningstar, its affiliates, and third-party content providers are not responsible for any investment decisions, damages or losses resulting from, or related to, the data and analyses or their use. To the extent any content is general advice, it has been prepared for clients of Morningstar Australasia Pty Ltd (ABN: 95 090 665 544, AFSL: 240892), without reference to your financial objectives, situation or needs. For more information refer to our Financial Services Guide. You should consider the advice in light of these matters and if applicable, the relevant Product Disclosure Statement before making any decision to invest. Past performance does not necessarily indicate a financial product’s future performance. To obtain advice tailored to your situation, contact a professional financial adviser. Articles are current as at date of publication.
This website contains information and opinions provided by third parties. Inclusion of this information does not necessarily represent Morningstar’s positions, strategies or opinions and should not be considered an endorsement by Morningstar.