Robin Bowerman, Head of Retail at Vanguard Investments Australia.
Robin Bowerman, Head of Retail at Vanguard Investments Australia.

ETFs used to re-enter sharemarket

THE latest Listed Managed Investments Monthly Update, published by the ASX, appears to confirm that numerous cashed-up investors are using Exchange Traded Funds (ETFs) as their comeback vehicle to re-enter the sharemarket.

In the 12 months to the end of March, the market capitalisation of ETFs listed on the Australian market grew by 150% to $3.36 billion.

Presumably, many more investors are following a core-and-satellite strategy – using ETFs to provide the core of their equity portfolios, and actively-managed funds and/or direct shares as “satellites” to the ETF core.

As this ASX report documents, the market capitalisation of ETFs grew at a powerful pace through the bear market and then truly accelerated when the market swung into its recovery phase.

For instance between March 2008 and March 2009 at the height of the bear market, the market capitalisation of ETFs increased by an impressive 31%.

Regular readers will no doubt note that Smart Investing regularly reports on the Australian and global growth of ETFs. The rate of growth can simply not be ignored.

Many investors – including self-managed super funds – of course use listed investment companies to provide the core of their equity portfolios. But interestingly, the rate of growth in the market capitalisation of listed investment companies has been much more modest in percentage terms than ETFs – albeit from a much larger base.

In the 12 months to March, the market capitalisation of listed investment companies increased by 30.4%. This was despite the strength of the market over that period.

And between March 2008 and March 2009, the market capitalisation of listed investment companies had fallen by 31%.

It is apparent that the rebound in share prices is acting as a trigger for countless cashed-up investors to choose ETFs as a favoured comeback vehicle.

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Robin Bowerman, Vanguard Investments Australia's Head of Retail, has more than two decades of experience in the finance industry as a writer, commentator and editor.
 


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