ETFs advisers’ preferred investment vehicle

Yasmine Raso

Senior Journalist, Financial Newswire

16 September 2022

A new survey of Australian financial advisers and professionals conducted by VanEck has revealed exchange traded funds (ETFs) are quickly becoming the investment vehicle of choice for advisers when considering their clients’ portfolios.

This year’s VanEck Australian Smart Beta Survey had around 650 responses, with two-thirds of respondents saying they increased their use of ETFs in the last 12 to 18 months and the majority planning to further increase their clients’ exposure to ETFs in the next 12 months.

The term ‘smart beta’ is used to describe investment strategies that have “a targeted outcome” and “track an index that goes beyond simple market capitalisation”.

“Active fund managers have long said that in market environments such as the current one, where share prices are volatile and returns are expected to stay relatively low, an active approach is vital to best navigate the volatility and uncertainty,” Arian Neiron, CEO & Managing Director at VanEck Asia Pacific, said.

“However, that’s not what we’re seeing. The recent SPIVA scorecard produced by S&P Dow Jones reinforces that. By way of example the 30 June 2022 SPIVA scorecard revealed 31.8% of Australian equity mid and small cap funds beat their benchmark indices in the six months ending 30 June 2022.

“Over the longer term 51% underperformed over 15 years. Advisers are seeking targeted investment outcomes in their portfolio construction process, employing smart beta ETFs, with flows into smart beta ETFs accelerating.

“The proportion of net flows going into smart beta strategies rose to 26.6% as at 31 August 2022, up from 20.2% a year ago, with that gain outpacing both active and market capitalisation strategies. Smart beta strategies now make up 15.2% of the total ETP industry, up 8% from the prior year, again outpacing growth in active and market capitalisation strategies.”

The survey also found that 56 per cent of respondents are using ‘smart beta’ products in place of active management, mainly due to cost savings.

“The expected increase in usage will drive further growth of the ETF market in Australia as it heads towards a market capitalisation of $150 billion by end of 2022, of which portion smart beta ETFs are likely to account for 18%,” Neiron said.

“Those who use smart beta are overwhelmingly happy with the product, with a whopping 99% satisfied with their smart beta investments, while 80% see smart beta investments as good value for money, up from 75% in 2021.”