Produced in partnership with Betashares.
As recent as 10-15 years ago, the majority of financial advisers exclusively used active, unlisted managed funds to construct client portfolios.
Today, they are tapping a broader range of investment vehicles to implement advice, due to client demand for more transparent, flexible and tax effective solutions, leading to an explosion in product choice and innovation.
Annuities and investment bonds are steadily gaining traction, particularly among retirees and pre-retirees, but the biggest disrupter in funds management has been ETFs, with assets under management exceeding $300 billion as of September 2025.
In the ETF universe, there are hundreds of broad-based passive equity market funds and an increasing number of fixed income and smart beta funds.
There are currently around 90 fixed income ETFs and over 50 smart beta ETFs on the ASX.
Many fixed income ETFs are also classified as smart beta, contributing to the broader growth and recognition of smart beta ETFs as a cost-effective way to outperform traditional index strategies by tracking a rules-based index.
Smart beta ETFs seek to exploit factors like value, momentum and quality by tracking intelligent, customised indices.
According to Tom Wickenden, investment strategist at Betashares, broad-based equity market ETFs have been embraced by advisers because of their transparent, flexible, low cost and tax effective characteristics, earning them a place in portfolios alongside unlisted funds and direct equities.
Their success has paved the way for second and third generation ETFs, with all three generations increasingly represented in model portfolios and managed accounts.
“Investors and advisers are familiar and comfortable with broad market ETFs but there’s still relatively little appreciation and understanding of just how many fixed income and smart beta ETFs there are, what they do and how advisers can use them in portfolio construction and asset allocation, although it is growing,” he tells Professional Planner.
“Many sophisticated asset allocators are using passive smart beta ETFs because they’re such an efficient way to get factor exposure.”
As of September 2025, Betashares managed around $60 billion in ETF assets including $15.1 billion in cash and fixed income, and $10.4 billion in smart beta (some fixed income funds are also classified as smart beta).
The Betashares Australian High Interest Cash ETF, which was launched in 2012, is the largest of the group’s 24 cash and fixed income ETFs, although the fastest growing is the Betashares Australian Composite Bond ETF launched in 2022.
The composite bond fund is an enhancement of the traditional Bloomberg Australian Composite Bond Index, which has grown to represent broadly 90 per cent government bonds and 10 per cent corporate bonds.
The fund, which Betashares designed with Bloomberg, is roughly 50/50 government bonds and corporate bonds, offering investors more diversified exposure to the broad Australian fixed rate bond landscape.
“The broad market index puts a higher allocation to the highest issuance size, and the government is the biggest issuer, but that [composition] doesn’t provide diversification,” Wickenden says.
“The index is heavily overweight government bonds, which is why active managers can outperform by increasing exposure to credit and duration. We said, this is broken, let’s fix it.”
Betashares composite bond ETF is both fixed income and smart beta. When it comes to equity smart beta, the most popular option in the Betashares stable is the Australian Quality ETF, which has amassed over $800 million in three years.
“Australian equities have been a challenging asset class for advisers and professional investors because the strong performance of seemingly overvalued blue chips has made it hard to outperform,” Wickenden says.
“Since inception, [Australian Quality ETF] has outperformed the S&P/ASX 200 by circa 4.5 per cent per annum, driven by re-weighting Australia’s largest companies by their quality metrics while also holding the highest quality companies from the remainder of the market.”
Whole of practice
When it comes to portfolio construction, ETFs share the stage with unlisted funds and direct equities, but Wickenden can see a day in the not-too-distant future when ETF-only model portfolios will be the norm.
He estimates that, across the industry, there is around $30 billion in ETF only model portfolios, of which Betashares manages around $4 billion.
“An increasing number of advisers are using ETF model portfolios as a whole of practice solution,” he says, adding that they may still invest in unlisted funds for illiquid alternatives like private credit and private equity.
“It’s still more common to see advisers construct with portfolios using a mix of direct stocks, unlisted funds, and active and passive ETFs, but model portfolios in general and more specifically ETF-only model portfolios are growing rapidly.”
Legacy is a key reason why more portfolios aren’t exclusively constructed using ETFs, according to Wickenden.
“Many investors have direct stocks and unlisted funds they’ve held for decades and want to keep. There are tax implications involved in selling these holdings,” he said.
“For financial advisers, client portfolios rarely come as a clean slate. A client might have a parcel of bank shares they’ve owned for 30 years and a mix of unlisted funds they like for various reasons. But if advisers did start from a clean slate, I imagine far more would use ETFs as a whole-of-practice solution.”
