ETF market shifts to active products

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Actively managed ETPs

With the Australian Exchange Traded Funds (ETFs) market booming, there is a shift that is seeing more actively managed products enter the market.

Of the 28 new products that joined the market in the year to 30 September 2021, 17 were actively managed products, according to Rainmaker Information's latest Exchange Traded Products Report.

In comparison, only 10 of the 29 products launched in the previous 12 months were actively managed.

 

Number of products

FUM ($ billion)

 

Sep-19

Sep-20

Sep-21

Sep-19

Sep-20

Sep-21

Active

25

33

49

3.885

5.419

25.760

Indexed

103

112

140

39.797

56.706

83.722

Smart Beta

36

35

52

4.195

9.045

15.813

Total

164

180

241

47.877

71.170

125.295

"Actively managed products have increased their share of new products by 26% over the last 12 months," said John Dyall, head of investment research at Rainmaker Information.

"The question is why. Active managers have seen the growth in the ETF market and decided they have better prospects for growth there than with the old distribution channel of unlisted unit trusts."

The ETF market's rapid growth has seen funds under management increase 76% in the last 12 months, with large amounts of flows coming from managed funds (unit trusts) that have been re-structured as ETFs or as hybrid structures.

Magellan was the first major manager to implement this rearrangement of its ETFs in November 2020, adding around $13 billion to the size of the Australian ETF market.

Magellan was promptly followed by two large unlisted unit trusts, the AB Managed Volatility Australian Equities Fund (with $1.5 billion) and the Hyperion Global Growth Companies Fund (with $2 billion).

"It showed that growth is not only driven by the change in attitude of investors towards different distribution channels. It is also driven by managers changing their distribution models," said Dyall.

"Australia was one of the first movers in the world when it came to combining existing unlisted unit trusts with ETFs."

The shift to active products is also part of an underlying trend where more actively managed international equities products are entering the ETF market.

Of the 17 new actively managed products in the market over the last year, 11 were international equities products, compared to two out of 10 the year before.

Total assets of active international equities ETFs were $3.7 billion at 30 September 2020, just over 5% of the total market.

A year later they had grown to $20.5 billion and accounted for 16.3% of the total market.

The same trend cannot be said for active international equities funds structured as unit trusts, which lost an estimated 4% ($3.5 billion) due to funds flow over the past 12 months. Strong returns in international equities have helped maintain and grow total funds under management.

International Equities net flows: ETFs vs. unlisted unit trusts