The Australian exchange-traded funds (ETF) industry witnessed a 33% year-over-year growth in 2023, reaching ~A$177.4 billion in funds under management, with A$15 billion in net inflows over the past year.
The industry's evolution coincided with investors increasingly gravitating towards cash and fixed-income ETFs, a trend partly fuelled by the Reserve Bank of Australia's aggressive monetary tightening, which raised the cash rate to 4.35%.
BetaShares chief executive Alex Vynokur highlighted this shift in investor sentiment, noting an unprecedented interest in cash and fixed-income ETFs. These asset classes, he remarked, are now a cornerstone for sophisticated portfolio allocations. 2023's influx was predominantly into fixed-income ETFs, followed by Australian and international equities. However, BetaShares anticipates a pivot towards global equities in 2024 as central banks potentially reduce interest rates.
Investor behaviour not aligned with ETF performance
The Australian ETF market now boasts over 2 million investors, a 7% increase from the previous year. Projections suggest that assets could surpass A$200 billion by the end of 2024. Despite this optimistic outlook, 2023's investor behaviour did not always align with ETF performance. For instance, while Hyperion’s Global Growth Companies ETF and the Global X Ultra Long Nasdaq 100 Hedge Fund saw substantial returns of over 69% and 134.9% respectively, they experienced notable outflows of investor capital.
Conversely, funds like the Global X Ultra Short Nasdaq 100 Hedge Fund and the BetaShares US Equities Strong Bear currency hedged fund, despite underperforming, attracted significant inflows. This trend underscores a divergence between performance and investor confidence.
The standout performer of 2023 was the BetaShares Crypto Innovators ETF, which capitalized on Bitcoin's 166% surge, recording a staggering 214.5% return. Similarly, the BetaShares Global Uranium ETF also excelled with a 56.5% return, benefitting from rising uranium prices amid global energy shifts.
Despite mixed performance across various funds, the overall sector's upward trajectory is clear, with expectations of continued expansion and diversification in investor choices.