Index manager Vanguard is monitoring the de­velopment of the exchange traded fund (ETF) market in Australia and could offer such prod­ucts here if enough demand existed, according to the group’s head of retail, Robin Bowerman.

He says that Vanguard provides ETFs in the US and it could import this capability into Australia. “We’re watching the [ETF] space closely”, Bowerman says. “We haven’t made any decision yet.”

ETFs, listed funds that are generally structured to mirror an underlying index, have gathered an enormous retail following in the US where hundreds of ‘exotic’ index products are now available. By contrast, the Australian ETF retail market has been slow to take off, growing only marginally since State Street launched two ASX-based products in 2001.

ETFs and index funds usually appeal to fee-based advisers because of their low management costs and absence of commissions. However, fans of the listed index funds received a boost this October when Barclays Global Investors (BGI) launched a range of eight international ETFs on the ASX. BGI is one of the world’s largest providers of ETFs.

Bowerman says the US experience has shown that ETFs expand the total market for index funds rather than “cannibalise” traditional unit-based products. However, he also says that the popularity of ETFs in the US could probably be traced to the influence of stockbrokers, as they remain a “powerful distribution force” in that market.

Because sharebrokers are typically remunerated by trading, ETFs offer an attractive alternative to commission-free index managed funds. “The financial planning market is structurally differ­ent in Australia,” Bowerman says. “Stockbroking firms have more or less given up their private advisory businesses.” 

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