The Australian sharemarket is experiencing an unprecedented surge in exchange-traded funds (ETFs), driven by robust investor demand for low-cost access to global markets, especially the burgeoning artificial intelligence sector. This record wave is set to intensify. Australia’s ETF market attracted a record $62 billion in inflows last financial year, with total assets under management (AUM) currently $362 billion, projected to exceed $400 billion by year-end.
A key catalyst for this growth is the federal budget’s proposed changes to capital gains tax, making ETFs more appealing as they internally net gains and losses. VanEck, an investment management firm known for its exchange-traded funds (ETFs), is launching three new ETFs on the ASX in early August, including the exchange’s first quantum computing product, a global semiconductors fund, and a rare earths and strategic metals ETF. Betashares, an Australian fund manager offering a wide range of ETFs, is also expanding its offerings with new multi-asset and diversified credit income funds, aiming for cost-effectiveness.
While many active funds have listed on the ASX, they secured only about 9 per cent of total industry inflows last financial year. Retail investors overwhelmingly prefer passive ETFs due to lower costs and consistent performance. However, thematic ETFs, particularly those focused on AI, are capturing significant retail interest. Global X’s semiconductor fund, the sole such ETF on the ASX, returned a stellar 166.8 per cent last financial year. Despite these strong returns, investors are cautioned against succumbing to market hype, exemplified by losses in rocket-themed ETFs.
VanEck’s head of Asia-Pacific, Arian Neiron, forecasts industry AUM could reach $500 billion between 2027 and 2028, noting market corrections might further shift money to transparent, liquid ETFs. Betashares chief executive Alex Vynokur added that increased fund manager participation in the ETF market benefits investors through greater choice, but advised careful product selection.
