Vanguard Investments Australia has announced it will launch Exchange Traded Funds (ETFs) for Australian investors.

The Vanguard Group is already a leading manager of ETFs in the US. Vanguard entered the US ETF market in 2001 and at the end of 2008, investments in Vanguard's range of 38 ETFs was more than US$45 billion - an 8 per cent increase over the previous year.

Four of Vanguard's ETFs were among the top 20 best-selling in the industry (US) in 2008.

Ian Alcock, Managing Director of Vanguard Australia, said the launch of ETFs into the Australian marketplace is a natural extension of Vanguard's proven indexing investment approach.

"Vanguard will now be able to offer Australian investors the option of buying indexed based investments through managed funds or ETFs depending on their personal circumstances and preferences," Alcock said.

ETFs are managed funds that are traded on the stock exchange. Index-based ETFs deliver all of the diversification and low cost characteristics of indexed investments coupled with the trading flexibility, liquidity and transparency of shares.

With current investment markets experiencing significant volatility and global economies showing signs of recession, the benefits of ETFs and indexing have come to the fore. The liquidity, diversification and flexibility of these funds has encouraged investors to place more investments into ETFs in the past year.

According to the Investment Company Institute, the US fund management industry's representative body, American investors invested nearly US$200 billion into ETFs in 2008. Over the same period equity managed funds suffered withdrawals of US$193 billion.

Globally there are more than 1600 exchange-traded funds representing more than US$650 billion in assets now available to institutional and individual investors. Five of the 10 most actively traded United States equities are ETFs.

Vanguard's head of retail, Robin Bowerman, said that while ETF takeup in Australia has been muted compared to other markets, Vanguard has decided to enter the market because it believes it will be a growth market in the long term and offers investors a broader choice of how they access index funds.

"The funds management industry may be going through a period of rationalisation and cutbacks but Vanguard is sticking to its philosophy of investing for the long-term by developing the product and operational capability to deliver ETFs to Australian investors," Bowerman said.

"For advisers, our new ETFs will represent an alternative way to access Vanguard's indexing approach, which can assist in reducing overall costs for clients and manage risks through diversification. They will also offer a flexible option in portfolio construction, with the ability to represent the core or a satellite investment in the portfolio."