Australia’s ETF industry has hit a record $388 billion as Aussies continue to pile into the low-cost investment funds, with the federal government’s capital gains tax overhaul only accelerating the trend.
Aussies invested $6.9 billion into ETFs in September, delivering the strongest quarter on record at $21 billion and taking inflows to $50 billion for the year so far.
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The industry now has $388.1 billion in assets across 508 products, marking growth of 25.5 per cent over the past year.
Marc Jocum, senior ETF strategist at Global X ETFs, said ETFs were becoming a “core building block in Australian portfolios”.
“Investors are no longer using ETFs for one purpose. They are using them to build the foundations of their portfolios, access opportunities around the world and create more diversified sources of growth and income,” he said.
Index-based strategies were at the centre of the industry’s growth, with a record $5.9 billion invested in September and accounting for about 85 per cent of inflows.
Betashares, which is predicting ETFs will surpass $400 billion in assets by the end of the year, said investors were paying more attention to the relative tax effectiveness of index-based investment strategies and ETFs following the announced changes to CGT rules.
“At the same time, the continued fall in Australian house prices is giving investors more reason to look at other asset classes like shares, bonds and commodities,” it said.
From July next year, the 50 per cent CGT discount will be replaced with an indexation model.
The change has made ETFs more attractive because they net gains and losses internally, so any surge in an individual company that might attract CGT is offset by another loss-making stock.
Bond turmoil creating more opportunities
Australian fixed income ETFs also saw a record $1 billion in inflows in September, as investors sought to take advantage of higher bond yields.
“For much of the past decade, investors had to look further up the risk spectrum to generate meaningful income,” Mr Jocum said.
“Today, bond yields are at levels not seen in decades, giving investors an opportunity to lock in higher income while adding greater stability to their portfolios.”
The US 10-year government bond yield has reached levels last seen in 2002, while Australia’s 10-year bond yield has climbed to a 15-year high.
Beyond traditional fixed income, Global X also noted an increase in Australian covered call ETFs and infrastructure ETFs.
Gold ETFs also saw a record $682 million invested in the September quarter.
“Beyond its traditional safe-haven role, gold is increasingly being viewed as a liquid alternative asset, offering a source of diversification when both equities and bonds face pressure,” Mr Jocum said.
There are now more than 500 ETFs on the ASX, following a record 72 being listed last financial year.
The growth has been supported by a strong uptake by younger Aussies, with nearly one in five Gen Z investors now holding ETFs.
According to the ASX, ETF trading activity last financial year surged 26 per cent compared to the previous year.
By comparison, there was a 22 per cent increase in ordinary shares trading hands over the same period.
This content was created in partnership with CommSec.