ETF market dips but bright spots emerge

The $3.11 billion net flows in February struggled to boost the Australian ETF market's position, with funds under management (FUM) dropping to $255 billion, according to VanEck's monthly ETF data.

February marked the eighth consecutive month of over $3 billion in flows into Australian-based ETFs, following its $250 billion milestone in January.

But the positive flows were insufficient to boost the market, with Australian equities flows down 44% to $791 million, while investors flocked to commodities like gold which has surged 135% to $249 million in the month.

This comes as the market is on track to hit $300 billion at some point this year.

According to the data, Vanguard Australian Share Index (VAS) received the most monthly net flows at $346.6 million, followed by iShares S&P 500 ETF (IVV) at $143.6 million.

Rest of the fields on the top 10 were Betashares Global Shares ETF (BGBL); Vanguard MSCI Index International Shares ETF (VGS); Global X Physical Gold (GOLD); Vanguard MSCI Index International Shares (Hedged) ETF (VGAD); iShares Core Composite Bond ETF (IAF); VanEck MSCI International Quality ETF (QUAL); Betashares Global Shares Currency Hedged ETF (HGBL); and Betashares Australian 200 (A200).

Notably, a shift away from the US market has seen significant growth in ETFs focused on other stock markets, including China and other Asia-based ETFs, VanEck said.

BlackRock's iShares China Large-Cap ETF and iShares Asia 50 ETF took the lead in performance for February, returning 11.6% and 7.2%, respectively.

Following the four-month mark of US president Donald Trump's administration, the Chinese index has outperformed, gaining 9.5% on the MSCI China Index.

Pointing to that, Pendal senior manager Samir Mehta remains bullish on the Chinese market, observing healthy developments since the pandemic.

"Its (the Chinese market) returns on capital employed (ROCE) has risen from negative pre-pandemic levels to 9-11%. And if my analysis is right, it could double over the next three to five years as it gains scale and operating leverage," Mehta said.

"While I do not suggest that these changes in China are permanent, the point I do wish to make is that Indian corporate ROCEs are waning, while those for China are ascending.

"If the Chinese authorities provide some stimulus, or if President Trump agrees to a deal, we could take that as superfluous arguments for capital to chase what is becoming a structural pivot.

"... if we were asked what an EM bull market looks like, we would say that it looks like this."

Additionally, according to AUSIEX's data, there is strong demand from financial advisers in the fixed income space. Specifically, there was a 10.65% increase in the number of trades year on year, with a 2.67% increase in traded value and 10.92% increase in the number of advised accounts trading domestic fixed income ETFs.

AUSIEX also found that the holdings in domestic fixed income ETFs were close to 60% higher at the end of January, compared to the previous corresponding period, representing an increased number of advisers flocking to the sector.