Ebb and flow of asset performance

In market terms, the backdrop was reasonably optimistic for retail investors, in SSGA’s opinion. Despite volatile trading conditions, share prices rallied in the first half of 2023, driven by resilient corporate profits and rebounding enthusiasm for the technology sector, particularly the much-discussed potential of artificial intelligence (AI). 

Other sectors gained, too. The continued weakness of the Australian dollar and higher commodity prices boosted resources stocks. 

At the same time, financial services and consumer discretionary shares withstood the high inflation and rising-rate environment to deliver some surprisingly upbeat returns [in the first half of 2023], in SSGA’s opinion.

Ultimately, by mid-November, the S&P/ASX 200 Index fell victim to investor caution and gave up most of the year’s gains [on a year-to-date basis]. Of the 11 sectors in the index, only the technology, IT, and consumer discretionary segments held steady.

Fixed income assets proved generally more resilient, and cash largely outperformed. That said, the Australian 10-year bond yield rose to 4.979% at the end of October, its highest since 2011 [1]. 
 

[Editor’s Note: Do not read the following information as a recommendation to invest in Exchange Traded Funds (ETFs). Most ETFs aim to replicate the performance of an underlying index, meaning they can deliver negative returns when markets fall. Also, the index over which an ETF is based can hold undervalued or overvalued stocks. Do further research of your own or talk to your financial adviser before acting on themes in this article. The free ASX online course on Exchange Traded Products is a good place to start for investors who are new to ETFs].

ETFs still gaining traction in Australia

Despite the prevailing uncertainty, Australian investors remain willing to allocate their savings beyond property and superannuation funds. 

According to an annual Australian Securities Exchange (ASX) Australian Investor Study, 53% of Australians held investments beyond real estate and superannuation, up from 45% in 2020 [2]. That represents an increase of 1.2 million investors.

Moreover, many new (and existing) investors are paying attention to Australia’s Exchange Traded Fund (ETF) market, in SSGA’s opinion.

It’s 30 years since the first ETF – the SPDR® S&P 500® ETF Trust (ASX: SPY) – was launched in the US, sparking a change that has transformed and democratised investment for millions of people. 

There are now more than 10,000 ETFs worldwide [3], tracking specific indexes, sectors, and geographies, and SPY alone has a market capitalisation three times greater than the world’s largest individual stock (by value).

In Australia, ETFs were slower to gain traction but there are now more than 300 ETFs available to investors on ASX. 

Over the last decade, the amount of money invested in ETFs has grown 18-fold [off a low base], and it’s estimated that about a fifth of Australians own shares of at least one ETF [2].

Indeed, in the past 12 months, despite the challenging investment climate, the industry has grown by more than $26 billion, mainly driven by fixed income and cash funds demand. [3]

More recently, the inflow of investor money into Australian share ETFs in the third quarter of 2023 more than doubled to $1.85 billion (from Q2 2023). Interest in international stocks also picked up as global share indexes revived, with overseas ETFs attracting $845 million in new investment [4]. 

Democratised investment

Several factors have contributed to the continued growth of ETFs in Australia, in SSGA’s opinion.

One is the increasing awareness among local investors that ETFs offer a direct way of gaining exposure to the full breadth of opportunity in the domestic and global economies, covering a variety of sectors, asset classes, geographies, and risk appetites. This gives investors the building blocks to construct resilient and well-diversified portfolios.

The second is simplicity. An ETF can be bought and sold through a broker as easily as shares of a company, and online platforms enable this to be done in seconds.

The third is cost. Owning and trading ETFs has been getting steadily cheaper as industry efficiencies improve, and competition drives fees lower.

Australia’s investment landscape is inexorably changing. Even as Australians likely face another volatile year ahead in SSGA’s opinion, more people are becoming aware of the opportunity that ETFs provide to build a financial future beyond the traditional platforms of home ownership and retirement funds. 
 

[Editor’s Note: Like all investment products, ETFs have benefits and risks. Key risks include tracking error (where the ETF’s performance deviates from its underlying index), market risk (where the underlying index falls) and currency risk (if the ETF is unhedged for currency movements). Different types of ETFs can have higher risk profiles. For example, thematic ETFs that invest according to a theme or sector can have concentration risk (due to fewer stocks held). Do further research of your own or talk to a licensed financial adviser to understand the features, benefits and risks of ETFs].
 

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[1] Source: World Government Bonds, as at 16 November 2023

[2] Source: ASX Australian Investor Study 2023

[3] Source: ETFGI, as at 31 September 2023

[4] Source: ASX Investment Product Monthly Update, October 2023

DISCLAIMER

Important Risk Disclosures: State Street Global Advisors, Australia Services Limited (AFSL Number 274900, ABN 16 108 671 441) is the AQUA Product Issuer for the CHESS Depositary Interests (or "CDIs") created over Interests in SPY which were first quoted on the AQUA market of the ASX on 13 Oct 2014.  State Street Global Advisors Trust Company (ARBN 619 273 817) is the trustee of, and the issuer of interests in, the SPDR® S&P 500® ETF Trust, an ETF registered with the United States Securities and Exchange Commission under the Investment Company Act of 1940 and principally listed and traded on NYSE Arca, Inc. under the symbol "SPY". You should read and consider the PDS at ssga.com/au before making an investment decision. The Target Market Determination is also available at ssga.com/au. This material should not be considered a solicitation to buy or sell a security. Investing involves risk including the risk of loss of principal. 6102626.1.1.ANZ.RTL  Expiry Date: 30/11/2024