The rise comes as the wider Australian ETF Industry rode a wave of young, new investors – growing by nearly 60 per cent to 720,000 investors in the year to August 2020.
According to Vynokur’s research, that cohort should grow by another 190,000 – or 26 per cent – in the coming 12 months, with ETF funds under management well on track to exceed $120 billion in Australia by December.
There’s some conjecture over the origin of the first ETF (some say Canada, others the US) but it is generally accepted that index-tracking products emerged in the wake of the Wall Street crash about 30 years ago.
Next month marks the 20 year anniversary since the launch of the first Australian ETF: State Street’s SPDR S&P/ASX 50 and S&P/ASX 200 funds, according to the ASX.
Both are among 220 listed exchange-traded products tracking a range of indices, sectors, commodity, cash and bond markets around the globe.
In the past, critics have derided the simplicity of ETFs, lamenting the potential for money to be left on the table by merely tracking an index instead of striving for actively managed outperformance.
Other detractors cite the potential for tracking errors in ETF products, the risks associated with low liquidity and narrow thematic investments or the temptation to take money out during a dip.
But the benefits appear tailor-made for Millennials and Generation Z: A low entry stake, cheap management costs, instant diversification and instant updates accessible on your phone.
Vynokur says it’s the democratisation of Australian wealth.
“You know when I emigrated to Australia with my family, the one thing I picked up pretty quickly is that the traditional path, and the only path almost, to building wealth in Australia is to buy property. That’s what gets you ahead,” he says.
“But I think it’s becoming very clear that generations of Australians from now on are really, really going to struggle to go into the property market.
“And if one was to assume that the only way to build wealth is through property, then what does it say about the future wellbeing of our country?”
It also helps, he says, when ETFs boast a consistency that many members of the old guard find difficult to match.
The local asset management landscape still dominated by traditional funds and listed investment vehicles including Magellan, Perpetual, Platinum and AFIC.
While not singling any particular operator out, Vynokur is keen to note that ETFs are cashing in on underperforming fundies.
“There are decades worth of data, both in Australia, in Asia, in Europe in the US, which demonstrate that in poor times, in bearish times, in tough times and good times, 75 per cent of active managers can’t beat the index,” he says.
ASX general manager of investment products Andrew Campion is another who can attest to the rapid rise of ETFs over the past decade. He estimates all index-tracking or passive funds – split roughly 50/50 between ETFs and unlisted index funds – occupy a mere 10 per cent of the $150 trillion investable products available worldwide, and will undoubtedly continue to make up a larger slice of the pie.
“The most famous and also the most ironic observation on that is Warren Buffett, when he dies, all his inheritance and all his wealth that he’s leaving to his family, he’s said to put it all into index-tracking S&P 500 ETFs,” Campion says.
He tips the “active ETF” space as perhaps the area that will see the highest growth in coming years.
While generally more expensive than passive products – due to the fact a fund manager will be picking and choosing stocks – active ETFs retain the ease of access, transparency, and immediacy that can be perceived as lacking from more traditional listed products.
Vynokur agrees that consumers will see actively managed ETFs take a bigger slice of the market. But he is also keen to impress that he is by no means an “indexing zealot”, with traditional funds and listed investment firms a crucial part of the picture.
“ETFs do bring competition, they do bring disruption, but I do not for a second assume that active management will cease to exist,” he says.
“If you were to imagine a utopian world where everything was indexed… well, there’ll be lots of inefficiencies in the market, there’ll be lots of opportunities for active managers to generate alpha to generate outperformance.
“The point is that we are definitely on the way. Not everybody emerges at the end of a period of tough change, but those that do, emerge with stronger business models.
“And I think the asset management industry… it’s an industry that’s been too comfortable for too long.”
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