Financial services leaders heard about the past, present and future of exchange traded funds at the recent FSC ETF Forum in Sydney.
Expert panellists at the FSC forum explained why ETFs are becoming increasingly popular in Australia and why the market is hotly tipped to grow in the years ahead.
“I think overall the local market is in good shape,” said Andrew Campion, Head of Investment Products at the Australian Securities Exchange (ASX). “It's well regulated and we are seeing increasing interest across the board from different types of investors.”
ETFs are a type of investment fund that can be bought and sold on a securities exchange market. Consequently, the support of the ASX will be pivotal to the success of ETFs locally. Campion was upbeat about the future, telling the audience:
“I actually think that the rate of growth will start to accelerate from here. The ETF market is fast approaching $50 billion locally. I think we'll probably get to that in the next couple of months. Some people will be quite pleasantly surprised how quickly we’ll [then] get to $100 billion. And that will take us to [the level of] some top tier ETF markets globally.”
Campion pointed to the Canadian ETF market as a benchmark for Australia to aspire towards. In Canada, the market recently passed $150 billion. “I think if the right incentives and the right regulations are put in place, particularly in the supply of financial advice, I see no reason why we can’t get to that [Canadian] level in the not-too-distant future,” said Campion.
Blackrock, one of the largest providers of ETFs, was represented at the Forum by Stephen Ead, Head of iShares Product & Platform in Australia. He said growth was partly being stimulated by advisors seeking to simplify their businesses: “They want to build efficient and low cost portfolios and I think with all the changes in the industry we are going to see that happen.”
Ead added that Australian clients are increasingly looking at ETF opportunities overseas too. “We're seeing a lot of clients look at the international markets of the US and Europe in order to live with some of the scale and the level of costs in those regions. And also the choice that is available. There are roughly 195 funds on the ASX. You look globally, and there's around about 7,000 funds choose from.”
Passive and active ETF products
Glyn Roberts, Equity Trading, Deutsche Bank, echoed Ead’s sentiments, saying he too had witnessed the growing interest in offshore ETFs. He also said that there had been “an explosion of passive products in Australia” in the past few years, and expected that to continue.
Alva Devoy, Managing Director, Fidelity International Australia, said she was a “a big fan of passive” products. However she did advocate a blended approach for clients, to help them navigate through market volatility. “Growing the options for clients ultimately will generate a better experience and outcome over time,” she said.
Roberts acknowledged the local market for active ETFs is “relatively concentrated” at present, but the sentiment among the panel was that this would soon change. Campion said that active fund managers now understand “that ETFs will be a key driver going forward in how all sorts of investors grow their wealth, build portfolios and manage risk. At the ASX we’re very keen to make it easy as possible for the active community to participate and launch products on the ASX and I think we’ll see a lot of growth in that part of the market going forward.”
With more and more Australians retiring in the years ahead, Devoy said it was vital that investors understood how ETFs work. Here, she emphasised the importance of education about the most appropriate products for retirees. Ead agreed, saying that this had to go beyond product disclosure statements, which are often not read or understood by investors. He suggested that educational sessions or even exams could be used to ensure people knew what they were buying and how their products were structured.