Aussie ETF industry hits $177.5bn

The local ETF industry ended 2023 at an all-time high, with a total industry market capitalisation of $177.5 billion, setting it up to exceed $200 billion this year.

According to Betashares' latest Australian ETF Review, the industry saw 33% growth year-on-year.

It recorded its highest annual funds under management increase in 2023, growing by $43.7 billion, with $15.0 billion in new inflows. This is compared to $13.5 billion in net inflows in 2022.

What's more, 2023 was the biggest year on record for product launches, with 56 new ETFs launched on Australian exchanges, up from 51 the year prior.

"In what is certainly an accelerating trend, a large proportion of the new launches in 2023 were active ETFs (46 or 26 funds) with the majority of these launches being via the creation of traded classes of existing unlisted funds, which we call conversions," Betashares chief commercial officer Ilan Israelstam said.

There are now 94 active ETFs trading on Australian exchanges with a total of about $35 billion of funds under management (FUM).

However, Israelstam said most of these assets come from existing FUM that has been 'converted' to the exchange via the 'open class' structure, with only $9.5 billion currently held on CHESS.

"We expect continued growth of this category, but to date, we haven't seen true widespread adoption 'on exchange' of ETFs," Israelstam noted.

When it comes to product categories, the report stated fixed income ETFs were most favoured by investors, with  net inflows of $5.3 billion, up from $3.6 billion in 2022.

Australian shares ETFs were the second most popular category with $5.2 billion in flows, compared to $4.4 billion in 2022, and international equities followed with $2.9 billion of net inflows versus $3.3 billion in 2022.

Israelstam said since the launch of the Australian ETF industry in 2001, culminative net flows in the Australian unlisted managed funds industry are now negative.

"This clear investor preference for ETFs, plus the increasing 'conversion' activity we're seeing of unlisted managed funds into active ETFs, represents a significant 'changing of the guard' in the Australian asset management industry," he said.

Looking to the future, Israelstam said the industry will continue to benefit from increased investor adoption and inflows combined with positive markets.

"As such, we forecast total industry FUM at end 2024 to exceed $200 billion and could reach as high as $220 billion depending on market conditions," he said.