Four areas for ETF investors to watch over 2014

As shown in the State Street Global Advisors December ETF snapshot, investor thirst for developed market equities drove the global ETF industry to $US2.4 trillion at the end of last year. This was a similar experience in the Australian ETF industry, where equities where the main driver behind the 52 per cent boost to AUM.

As investors continue their hunt for more cost effective, simple and relevant investment solutions, we anticipate 2014 will be another strong year for ETFs, with the local ETF industry reaching over $13bn in AUM by year end. Increased adoption by a broad range of investors, product innovation, advancements in technology and continued education will be key growth drivers.

“At SSgA, we expect global growth to gather momentum in 2014, with recovery being more broad based,” noted Amanda Skelly, Head of SPDR ETFs, Australia.

“With this backdrop, there are plenty of ETF investment opportunities to catch the Australian ETF investor’s eye,” she added.

Skelly has outlined four areas for Australian ETF investors to watch during the year:

1. Equity based ETFs over fixed income, within equities investors should seek ETFs exposed to cyclical sectors rather than defensives
Although valuations are no longer as deeply discounted as this time last year, equity markets remain attractive relative to fixed income and other alternatives

2. Internationally, equity ETFs that offer exposure to Europe and the US
The US looks set to enjoy accelerated growth and Europe’s recovery, while fragile, poises the region for modest growth

3. Globally diversified dividend-based equity ETF strategies
Some market participants are warning that dividend investing is approaching bubble-like territory as investors continue to add exposure to help meet their income needs. We caution investors to avoid painting dividend-based equities with too broad of a brush as they may miss opportunities with companies that have been steadily growing their dividends over long time periods.

4. A more active approach to allocating among emerging market ETFs
The landscape has changed and not all emerging markets present the same opportunity so a discriminating approach, in terms of geography, assets, sector and investment style may deliver the best return potential in inefficient markets.