Australian investors are continuing to turn to ETFs to access fixed income, the third most desired asset class in the sector, according to the latest ASX data.
In the year to April, fixed income ETFs had the strongest growth of all ETF asset classes rising by almost 34 per cent to $20.84 billion, third only to international and Australian equities.
Investment Trends head of research Irene Guiamatsia tells Professional Planner the trend also shows a “huge home bias” to domestic fixed income and was unique, compared with international biases for investors in Asian and Europe.
“I can see a couple of reasons… we may be perhaps a bit disconnected and perhaps also when overseas markets move, we are asleep, it can be hard to maybe connect and have a sense of what’s really happening when you get the information with a bit of a delay,’’ she says.
“Tax settings that exist for domestic products that may not be applicable to those global products, that may, perhaps, turn their preference. We’ve seen this time and time again and it’s always a bit puzzling. We really love our stuff.”
Reflecting that home bias, ASX data shows Australian fixed income assets under management grew to $12.72 billion in the year to April, compared with global fixed income of $14.14 billion.
“Fixed income represents the third asset class after domestic equities and global equities that Australian investors will be accessing through ETFs,’’ she says.
“You can really see that growth year on year and the information from both advisors and investors in terms of the intentions to use more fixed income going forward will also be added. The trend over recent years has actually increased quite significantly.”
Lonsec senior investment consultant Ron Mehmet expects more actively managed fixed income ETFs on offer for investors this year, most likely favoured by younger investors and financial advisers.
“What we’re seeing is, there’s a change in the demographics of the financial planning group as a whole,” Mehmet says.
“I find that a lot of the guys in their 40s and 50s and older ones are always used to using [managed] funds.”
Mehmet says younger planners coming into the profession don’t want to go directly managed funds but would rather access investment vehicles via exchanges.
“The reason being is they don’t want to pay platform fees of like, for example, 50 basis points, when they can just go to CommSec or a trade or NAB trade and buy the ETFs,” he says.
“You can buy physical bonds now on the ASX or the other exchange, the Cboe and at the end of the year, those discount stockbrokers give you the paperwork, evaluations or transactions for free.”
“What we’re seeing is last year and this year speaking to a lot of the fund managers, the active ones are now getting into the ETF space and the listed space with their funds.
Mehmet says over the previous two years, active managers are diversifying their products by using actively managed funds that are traded on an exchange as a distribution vehicle.
“If you’ve only got a traditional fund and you’re a fund manager, and a lot of people are using ETFs and they’re using a lot of listed type vehicles, you’re effectively missing out on about 37 per cent of your market because that is the growing market,” he says.