Speaking at an event last week, Paul Elflain from Calastone highlighted the growing shift towards exchange-traded funds (ETF), stating there is now clear recognition that “if you’re not in the ETF market, you need to be in the ETF market”.
For years, ETF adoption among traditional fund managers was mostly talk. But over the past year, that talk has turned into action, with new ETF launches across the UK, Europe, and Asia.
Elflain pointed out that many firms are coming to terms with the fact that the era of mutual funds may have peaked, prompting a strategic shift towards ETFs to stay competitive.
“What’s consistent across the globe is the overhang of fund managers who have been talking about launching ETFs for a very long time. So, the mutual fund managers, who have been watching the ETF space very closely probably for the last five to six years,” he said.
“Over the past year you’re seeing these manages truly come to market.”
This shift is not just theoretical – it’s backed by data. According to a recent study by Bank of America, mutual funds that converted to ETFs not only recovered lost assets but saw a surge in inflows. On average, the 121 converted funds experienced US$150 million in net outflows in the two years prior to conversion but attracted US$500 million in inflows after transitioning to an ETF.
Australia’s ETF industry is also experiencing rapid growth. State Street’s 2025 Global ETF Outlook forecasts a 25 per cent expansion, with funds under management (FUM) projected to climb from $240 billion to $300 billion by next year, supported by net inflows exceeding $50 billion. Globally, the ETF market now stands at US$15 trillion, with record inflows of US$1.9 trillion last year.
“The Australian ETF market continues to mature and investor adoption is higher, experiencing nearly 30 per cent CAGR over the last 10 years. Last year, the Australian ETF market enjoyed strong inflows, in particular, passive ETFs,” said Ahmed Ibrahim, State Street’s head of ETF solutions for APAC, earlier this month.
“There were also a number of new entrants into the active ETF space and that trend looks to continue in 2025, where large investment managers who have predominantly run unlisted strategies are adopting the dual-access model or opening an ETF share class.”
This momentum is positioning Australia’s ETF market as both a gateway to the Asia-Pacific region and a compelling stand-alone opportunity, attracting major global asset managers.
Speaking alongside Elflain at the Calastone event last week, Oran D’Arcy, head of APAC listings at Cboe, said: “We have a huge superannuation market, a growing market for ETFs, the size of the retail market is attractive. Australia may be the fourth-largest market in APAC, but it is on a good growth trajectory of its own.”
Ultimately, experts agree that while mutual funds aren’t disappearing, ETFs are reshaping the investment landscape, forcing fund managers to adapt or risk being left behind.
