Home / ETF / Passive funds still reign supreme despite market turbulation

Passive funds still reign supreme despite market turbulation

The pendulum may have swung back towards active management this year, but the domestic ETF market is flush with options and continues to steal FUM.
ETF

Net inflows into exchange-traded funds (ETFs) continue to be dominated by passive mandates as investors steer clear of an increase in active offerings.

The latest data from the two domestic exchanges show Vanguard, BetaShares and iShares (BlackRock) attracted 88 per cent of total net inflows over the past twelve months. This has further entrenched the big three issuers’ market share, which currently sits at 65 per cent.

Stockspot senior manager of investment and business initiatives Marc Jocum (pictured) says the big three are doing a great job of meeting the needs of investors and then distributing products effectively.

  • “Low cost, performing well, providing liquidity and giving great exposure. That’s what investors are looking for,” Jocum explains.

    Despite the market downturn this year setting the stage for active managers to show their value – the S&P/ASX200 is down 12.5 per cent to date – investors continue beating a path to low-cost options.

    The ETF market has grown 38 per cent per annum over the past five years, compared to just 11 per cent for listed investment companies (LICs) and 7 per cent for managed funds.

    Over the past twelve months active funds attracted just 10 per cent of net inflows. Despite the difficulty in attracting new money, active managers continue to try and capitalise on the rapid growth in the ETF market. Active products represent 17 per cent of total funds compared to just 7 per cent five years ago.

    Jocum adds that the domestic ETF market is already saturated with options, meaning new products are increasingly thematic or niche.

    “Most investor money is going into what we call beta”, he says, “which is just tracking the market and adopting that core and satellite approach.”

    Active struggles to keep up

    The latest Standard & Poors SPIVA scorecard revealed slightly over half of all active managers beat the benchmark over the past six months. But on a 15-year time horizon, 95 per cent underperformed.

    Jocum says “every manager has their moment in the sun”, but the ability to keep selecting the right companies, recover management fees and cover brokerage costs makes it difficult for active managers to compete against a passive benchmark. “Markets are very efficient.”

    Passive remains popular

    The ETFs with the most funds under management (FUM) are largely broad-based indexes that capture popular local benchmarks in Australia and the United States.

    Ticker CodeETFFUM
    VASVanguard Australian Shares Index ETF$11.2 billion
    MGOCMagellan Global Fund – Open Class Units$8.9 billion
    IVViShares S&P 500 ETF$5.0 billion
    VGSVanguard MSCI Index International Shares ETF$4.8 billion
    STWSPDR S&P/ASX 200$4.6 billion

    The Magellan global fund continues to rank highly. However, nearly $4 billion was withdrawn from its current ETF products suggesting investors are moving away from the active manager. Eight ETF issuers recorded outflows over the past 12 months, with the majority active managers.

    Ticker CodeETFNet inflows
    VASVanguard Australian Shares Index ETF$2.8 billion
    VGSVanguard MSCI Index International Shares ETF$1.1 billion
    A200Betashares Australia 200 ETF$1.0 billion
    QUALVanEck Vectors MSCI World Ex-Australia Quality ETF$846 million
    HYGGHyperion Global Growth Companies Fund$712 million

    Similarly, the top three funds by net inflows were passive products. Despite a resurgence in value investing this year, two growth-oriented ETFs rounded out the top five.

    Jocum says that capital will continue to flow into the products which have a long history of performance.

    “That’s where the trust is and where the model portfolios are.”

    Lachlan Buur-Jensen

    Lachlan is an experienced journalist writing across The Inside Investor and The Inside Adviser.




    Print Article

    Related
    Investors shake off home bias, shift to international equities

    Australian investors are looking past the allure of franking credits and moving towards more unbiased diversification, with ETFs providing a cheap, liquid and highly available access point.

    Tahn Sharpe | 4th Nov 2024 | More
    Macquarie leans into AI for ‘less volatile, more robust’ equity active ETFs

    It’s one thing to acknowledge the immense computing power at our disposal, but it’s another for leading investment teams to figure out the best ways to shape that advantage into better investment outcomes.

    Tahn Sharpe | 26th Sep 2024 | More
    Battle for market share rages as world’s largest provider slashes core ETF fees

    BlackRock sent a shiver through the domestic ETF market, which has tripled in the last four years to around $25 billion, slashing prices for two if its core products.

    Staff Writer | 20th Feb 2023 | More
    Popular
  • Popular posts: