The Morningstar Global Investor Experience: Fees and Expenses study, released on September 17, noted that while managed funds still dominate the Australian financial landscape, advisors are increasingly recommending ETFs and the use of ETFs is becoming more increasingly popular with self-directed retail investors due to the proliferation of ETF products and large financial inflows.
“The use of locally listed exchange traded funds is small relative to Australia’s total assets under management of approximately [$1.62 trillion] as of December 31, 2018,” the report said.
“ETFs represent about 2.5 percent of this figure, which is lower than in most developed markets in North America and Europe. However, it is important to note that the use of ETFs in Australia is generally geared towards retail investors and is growing rapidly, with more ETF products becoming available. [online] and substantial inflows to ETFs.
The report notes that Australia has a large savings pool relative to the size of its economy due to its mandatory superannuation system, which is primarily managed by institutional investors.
“In the case of self-directed retail investors, the use of ETFs is well above 2.5 percent. Advisors are increasingly recommending ETFs, although recommendations for managed (mutual) funds still dominate,” the report said.
The report notes that different levels of ETF usage among individual investors in different markets can be attributed to a number of factors. These include market maturity, ease of access to funds, differences in advisory models and tax considerations, among other factors.
“Generally speaking, ETF usage among retail investors is low in most of the markets we studied,” he says.
“In Asia, where fund distribution is dominated by local banks who have no incentive to sell ETFs to individual investors, we have noted a low level of ETF usage in the region. »
Morningstar found that ETF usage is generally higher in mature markets with large populations of engaged retail investors, where independent, fee-based advisory models flourish.
ETF adoption is highest among individual investors in the United States, where ETFs have become the vehicle of choice for many self-investors and digital advice providers. The report notes that ETFs also tend to be more tax efficient than open-end mutual funds for U.S. investors.
“In the meantime, European markets can serve as interesting case studies to examine the interaction of these different factors. Individual investors in Europe can, in theory, access the same ETF menu, thanks to the UCITS framework. But ETF usage varies from low to high across markets based on differences in accessibility, advisory models, and more. ”, says the report.
Australian ETFs reached $54.1 billion in assets under management in August, according to a report from Stockspot, which also predicts that ETF assets in Australia will almost double to $100 billion in 2022.
