The ownership of exchange traded funds (ETFs) by investors is growing at three times the speed of superannuation assets, according to provider State Street Global Advisors.
The amount invested in ETFs registered in Australia will grow from $12 billion currently to $25 billion over several years, while a far greater figure is already invested by domestic investors in ETFs registered in other countries.
The usage is roughly split a third amongst self-managed super funds, a third amongst institutional investors and a third from bank-aligned advisor-led investors.
These figures were revealed at the launch of SPDR S&P 500 ETF, the world’s largest and most traded ETF, on the Australian Securities Exchange.
Amanda Skelly, head of SPDR ETFs for State Street Global Advisors, gave several core reasons for institutional investors to use of ETFs.
Large investors are using ETFs to access niche sectors such as oil and gas where it is difficult to build up a tailored mandate or access pooled funds.
Some use ETFs for sector tilts in dynamic asset allocation programs, while ETFs can be more cost effective than futures contracts, partly as ETFs accrue franking credits which futures contracts do not.
In the SMSF and advisor led investment space ETFs are largely being used for reasons of relative cheapness and due to the need to diversify portfolios that hold a limited number of Australian stocks. Here ETFs are being held for several years on average.
Skelly predicted that the use of online technology would increase the popularity of ETFs amongst personal investors. She imagined a scenario where individuals could view on social networking sites what others were investing and then be able at the push of a button to change their portfolios to match.