July marked a period of record growth for Australia’s ETF market, which received a whopping $3.5 billion in inflows – the first time that monthly flows have surpassed $3 billion, with the previous record of $2.9 billion set in September 2021.
But the local ETF market, which now exceeds $215 billion in size, has volatility right at its doorstep.
With an attempted high-profile assassination and a global cyber security outage challenging markets last month, Betashares investment strategist Hugh Lam told InvestorDaily that, in spite of this, ETF investors are firmly in risk-on territory.
“It’s a continuation of trends that we’ve seen month on month into broad based, international and Aussie equities. But particularly, we actually saw a return of volatility,” Lam said on July’s inflows.
“[Investors are] actually seeing this as an opportunity to add into portfolios. That differs to other industries where volatility might scare off investors from adding into positions. But in the ETF industry, we saw the reverse.”
He added that the new financial year could be incentivising investors to refresh their portfolios.
“Investors might be adding into their portfolios as a fresh start to the financial year. So that might be another reason, and seasonally we’ve seen that as well.”
Despite the broader market dislocation, Betashares reported that ASX trading volumes for ETFs reached $14 billion in July, marking the second-highest monthly value on record. This, according to the firm, suggests that investors remain committed to their positions.
“The sentiment is still positive, and there’s no real ‘risk off’ sentiment that we’re reading, at least from investors, and from a flows perspective,” Lam explained.
The data precedes the turbulent market period from 2 to 9 August, which was triggered by US recession concerns and intensified by investors “rushing to unwind risky positions”.
The ASX, which plummeted 3.7 per cent on 5 August as the panic set in, managed to show some recovery but ended the week down some 2.1 per cent with losses led by resources, IT property, and financial shares.
“When sentiment has fallen to bear market extremes, if you get some bad news, it doesn’t cause extra selling necessarily, but if you get good news, then it doesn’t take much to tip the market higher again,” AMP chief economist Shane Oliver told InvestorDaily earlier this month.
On the flip side, early indications show that ETF investors are capitalising on the current high volatility, with nearly $1 billion in net flows already recorded for August, according to Betashares.
“Investors might be seeing this as a good buying opportunity. The big sell-off that we saw, yes there was a scare of a potential recession within the US, we saw rising unemployment numbers over there,” Lam outlined.
“But investors are looking beyond that. Investors generally have a long-term time frame, they want to hold nice diversified portfolios.
“And this sell-off, it really was a screaming opportunity. Why not, right? Why not add into their portfolios, or why not add some further funds?” Lam concluded.
Australia’s ETF market surpassed $200 billion assets under management at the end of June.
At the time, Betashares predicted the local ETF industry will reach $220 billion by the end of the year and increase to $500 billion by 2030’s end.
The firm’s data showed that shifting investor sentiment had seen international and Australian equities return as preferred asset classes for ETF investors this year.
“There has been a shift so far since the end of 2023 as investors and their financial advisers return to international and Australian equities as market sentiment improves,” CEO Alex Vynokur said.
Looking at Betashares’ July data, international equities ETFs stood out again, accounting for $1.6 billion of all flows in July.
International equities almost doubled the amount of net flows received by second placer Australian Equities products ($891 million), while fixed income was in the third spot with $746 million.
