This article has been written by expert contributor, Tony Kaye, Senior Personal Finance Writer, Vanguard Australia.
ETFs are continuing to gain popularity among Australian investors. ASX data shows almost $1 billion was invested into Australian-listed ETFs in May.
The number of Australians holding exchange traded funds (ETFs) in their investment portfolios has surged by more than 30% over the last three years, highlighting their growing popularity among investors.
According to the ASX Australian Investor Study 2023, one-in-five (20%) of the 7.7 million on-exchange investors in Australia now hold one or more ETFs compared to 15% of investors in 2020. This equates to around 1.54 million Australian investors.
“The continued popularity of ETFs is no surprise, given their ability to provide investors with exposure to a wide range of companies, regions, asset classes and strategies, making it easier to diversify,” the ASX study found.
Another key factor cited in the study as influencing investors in their uptake of ETFs is fees and costs.
“This could be another aspect driving the popularity of ETFs, which can have lower fees than other investment types, allowing investors to purchase a basket of assets for the cost of one trade.”
The study also found that because ETFs are one of the most affordable ways to enter the investment market and diversify holdings, they have been a common choice for new investors.
As well as 14% of on-exchange investors selecting them as their first investment, ETFs were the second most common investment traded, with 11% of investors trading them in the past 12 months.
Among investors intending to make their first investment in the next 12 months, 26% indicated they would be focusing on ETFs.
Investor inflows into ETFs increase over May
A pick-up in investor cash inflows combined with a broad rise in asset values saw the total value of investments within Australia’s ETFs sector increase to $143.5 billion in May.
This represented an increase of more than $1.3 billion over April, when Australian ETF assets under management rose by over $3 billion to around $142.1 billion.
Australia’s ETF sector has grown by more than $10 billion since the start of 2023, when total assets under management were $130.4 billion.
Data released by the Australian Securities Exchange (ASX) shows $970 million was invested into ETFs during May compared to $721 million in April and $553 million in March.
Australian equities ETFs ($410.3 million) and Australian fixed income ETFs ($412.4 million) collectively accounted for more than $822.6 million of total ETF investment inflows.
Vanguard remained the largest Australian ETFs issuer by assets under management in May with $44.3 billion of assets (30.9% of total industry assets). Since the start of 2023 Vanguard has received the largest portion of ETF cash inflows with $1.28 billion (representing 36.6% of total cash flow).
ETF investment trends
The latest Australian Investor Study found that investors who start with ETFs tend to be younger (a median age of 28), and start with smaller portfolios (a median of $46,500).
Investors who hold ETFs were most likely to be seeking diversification opportunities, looking for a balance between risk and return, aiming to maximise their capital growth or secure a sustainable income stream. They appeal to both high value investors and SMSF owners.
But the study found that ownership of ETFs is skewed towards males (27%) versus only 13% for females.
The study also noted that with females generally having lower allocations than men to Australian and international shares as well as ETFs, this may leave female investors with less exposure to a variety of diversified investments.
“Only 32% say they have a diversified portfolio compared with 58% of male investors. While 45% of females say they are not diversified, it’s possibly a function of smaller portfolios or lower incomes. Meanwhile, 23% of women indicate they do not know if they are diversified or not.”
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.
Read more about the ways you can use ETFs in your investment portfolio.
Tony Kaye is Senior Personal Finance Writer at Vanguard Australia. In his role, Tony regularly produces topical investment-related articles and educational content designed to help investors make well-informed decisions.
Tony is a former managing editor and financial journalist, and his articles are published in Vanguard’s weekly Smart Investing newsletter and elsewhere.
The above material has been republished with the permission of Vanguard Investments Australia Ltd.