VanEck Australian ETF Review – Half Year 2020

After a strong start to the year with a record January, things quickly took a turn for the worse in what will be remembered as one of the most volatile six-month periods in history. However the Australian ETF industry remained resilient as investors turned to exchange traded products (ETPs) to end the first half of 2020 with record inflows.

Industry size: Despite record numbers, the ETP industry grew at a relatively subdued rate of ~6% due to decline in asset values ending the half year at $65.6bn, slightly below the all-time high $66bn achieved at the end of January. In absolute terms, the industry grew ~$4bn which can be entirely attributed to net inflows. 

Net flows: The industry saw net new money of $8.2bn to the end of June, which is an increase of 90% compared to pcp and an increase of 300% compared to first half 2018.

Product launches: After a relatively quiet first quarter with only 3 new product launches, the half year ended with 9 product launches in total. Notably, there were two ETF issuers that exited the market as UBS converted 6 of their products in May and Pinnacle liquidated their 2aShares products in June. There are now 212 ETPs listed across 23 issuers in an increasingly competitive industry.

Flows by strategy type: Market capitalisation products continue to take the lion’s share of flows making up 56% of net flows for the first half as smart beta products and gold/leverage and inverse products received 16% and 22% of industry flows respectively. Smart beta products continue to be the fastest growing strategy type in the Australian ETP industry growing their market share by 32%, 42% and 48% over 1, 2 and 3 years respectively.

Strategy	Net Flows YTD ($m)
Active	504.8
Other	1,828.6
Market Capitalisation	4,584.0
Smart beta	1,281.3

Source: ASX, as at 30 June 2020

Cumulative net flows by strategy

Source: ASX, as at 30 June 2020

Flows by asset class: The first half of the year saw a complete overhaul of the asset class flows composition compared to 2019. Some notable observations include:

• Equity made up almost 70% of the total net flows with Australian equity in particular more than doubling its market share and over 1.5x the flows of the next largest asset class, international equities.
• Conversely, fixed income saw a sharp decline from 30% of market share in 2019 to 3% after recording net outflows from February to June.
• There was also significantly more flows going into leveraged & inverse and gold bullion products, increasing by 660% and 141% respectively.

Asset class	Net Flows YTD ($m)
Australian Equity	3,647.9
International Equity	2,029.5
Commodity	928.5
Leveraged & Inverse	853.1
Asset Allocation	242.3
Australian Fixed Income	202.4
Cash	174.3
International Fixed Income	73.6
Currency	47.0

Source: ASX, as at 30 June 2020

Asset class	2020 YTD (%)	2019 YTD (%)
Australian Equity	44.49%	24.67%
International Equity	24.75%	31.98%
Australian Fixed Income	2.47%	25.52%
Commodity	11.33%	8.26%
Cash	2.13%	-0.17%
International Fixed Income	0.90%	4.76%
Asset Allocation	2.96%	3.76%
Leveraged & Inverse	10.40%	2.40%
Currency	0.57%	-1.18%

Source: ASX, as at 30 June 2020