ETF take-up surges during pandemic

Take-up of exchange traded funds (ETFs) is growing strongly as advisers seek efficient and timely ways to diversify portfolios and invest thematically in a rapidly evolving market.

Investment in Exchange Traded Funds (ETFs) has risen strongly during the COVID-19 pandemic as advisers seek efficient and timely ways to diversify portfolios and invest thematically in a rapidly evolving market.

2020 saw AUSIEX trade $7.9 billion in ETFs, an increase of 46.8% over 2019, and the number of customers trading ETFs (across our entire book) increase by 32.9%.

The findings are included in the recently released AUSIEX whitepaper Australia’s trading transformation: A comparative analysis of how market segments are approaching today’s market and what it means for advisers and investors. The paper analyses AUSIEX data on the trading of equities and ETFs across different market segments in Australia during the period between November 2019 and March 2021.

Advisers turn to ETFs in volatile market

Growth was most substantial among advisers trading through platforms, where ETF take-up more than doubled in the first eight months of the pandemic. Accounts went from an average of one in five trading an ETF pre-COVID to more than half during the March through October period, and two in three by the start of 2021.

Outside of the platforms, growth in advisers trading of ETFs was driven mainly by holders of new accounts opened during the lockdown period as advisers sought efficient and timely ways to establish and balance new client portfolios in a rapidly evolving market. ETFs tend to provide more control over an investment income and create underlying diversification, both of which are attractive in volatile conditions.

Andrew Stewart, Head of Product & Distribution, AUSIEX, said clients use ETFs to achieve diversification and invest thematically:

“ETF investing for advisers has enabled benefits related to diversification, but also enabled access to some investment ideas based on relevant and current themes. For example during the first wave of COVID-19, lots of people were working from home and thinking about issues relating to technology and working from home, As a result we saw some interest in ETF’s relating to technology and cybersecurity” .

Two examples of this are ASIA (BetaShares Asian Technology Tigers ETF), and HACK (BetaShares Global CyberSecurity ETF), both of which increased in popularity during the early weeks of the pandemic.

Structural industry change drives demand

Stewart said the increased use of ETFs also relates to structural changes in the advice industry, as advisers move from big national dealer groups to set up their own businesses.

“As part of that change, advisers are now re-evaluating their value proposition. We expect the growth in ETF take up to continue as advisers look to provide low cost, tax-effective ways of investing to their clients, and also look to access global markets and thematic investing through ETFs.”

Outside the advised space, interest in and awareness of ETFs among self-directed investors grew during the pandemic. Established self-directed accounts had barely traded ETFs prior to the pandemic, with less than 7% active in this area. However, this proportion more than doubled to 16.5% post-March 2020.

With most positional change between November 2019 and March 2021, the biggest winners among self-directed investors were BetaShares Crude Oil ETF, gaining 27 places to be in 10th place, BetaShares Australia 200 ETF, and State Street SPDR 50 Fund.