Local investors added $6.7 billion to ASX-listed exchange-traded funds (ETFs) in July, up from $2.5 billion in June, according to Vanguard data.
However, of the roughly $17.55 billion in total ETF flows seen in the first seven months of 2024, nearly $15 billion was into index ETFs, or about 86% of total investor dollars.
“The remaining investor inflows into ETFs through the end of July, approximately $2.54 billion, largely reflected the recent conversion of an actively managed, unlisted fund to an ETF product,” Vanguard said .
“This transaction alone added $2.49 billion.”
This comes despite a sharp decline in active ETFs on the ASX in the first half, accounting for 68 per cent of all new funds listed on the exchange.
Adam DeSanctis, head of ETF capital markets at Vanguard Asia Pacific, pointed out that the trend of index funds taking the lion’s share of flows is not new.
“In 2023, for example, index funds captured $16.17 billion in investor inflows, compared to $1.89 billion in inflows into active funds,” DeSanctis said.
Looking at each strategy by asset size, Vanguard research showed that $168.2 billion was invested in 243 index funds at the end of July, representing 81% of total assets under management ( AUM) of the sector.
In contrast, $40.55 billion – or 19 percent – was invested in 114 active fund products.
“The growth in active assets under management has been quite staggered, mainly due to the choice of several large companies to transform their unlisted funds into ETFs. These are the same funds as before, but they now trade through an active ETF structure,” DeSanctis said.
“It’s clear that passive index funds are where the bulk of the ETF industry’s cash flows are going, as more and more Australians use them as the core pillars of their portfolios to track the returns of broad indexes of different markets,” he concluded.
Amid the booming Australian market, which now exceeds $200 billion in assets under management as of June, Global low cost” in ETF strategy selection, where higher costs historically align with managed funds.
Specifically, Jocum highlighted that more than three-quarters of fund flows are directed toward products with management fees below 0.25 percent per year, with an overwhelming majority of 97 percent going toward products charging 0. .5 percent or less.
“I think Australian investors still have this perception, rightly so, we think, that a lot of the simple arithmetic of the stock market and some of the statistics behind it is that active managers still have difficult to outperform their benchmark, and to outperform their benchmark a broader ETF, such as a low-cost vanilla ETF.
“That’s where you see a lot more money invested just in your very diverse, low-cost products. Because, naturally, this is where a lot of people think, “If I can get exposure to a certain asset class, why not control one of the areas that investors can control”, which is fees that they pay.
