- Basis Points
- Posts
- 409 & Counting: How the next generation of investors view the flood of ETFs
409 & Counting: How the next generation of investors view the flood of ETFs
Equity Mates
March 31, 2025
The Equity Mates network reaches more than 600,000 young Australian investors each month. For advisers, these are the next generation of clients. This monthly email shares insights to help advisers prepare for the next generation of clients.
409 & Counting: How the next generation of investors think about the flood of ETFs
The biggest trend in Australian finance over the past decade has been the rise of ETFs. 2024 saw the Australian ETF industry reach $200 billion funds under management, which is 20-times the size it was just 10 years ago.1
Every day, Australians invest $500 million into ETFs, the equivalent of 10% of all daily turnover on the ASX.2
It’s not just the assets under management that is growing, the number of products on issue has exploded as well. If we turn back to the earliest Cboe Monthly Australian Funds report, in October 2019, we can see 205 ETFs on the market across both Cboe and the ASX.3 Today, just 6 years later, there is 409.4 That is an 12% CAGR - the number of ETFs is growing faster than some of these ETFs themselves!
Understandably, this proliferation of ETFs has everyday investors confused.
A sample of posts from the Equity Mates Facebook Discussion Group
So we set out to survey the Equity Mates community to understand how everyday Australian investors are thinking about ETFs in their portfolios.
The first takeaway was clear - ETFs are now the largest part of the average investors portfolio.
But as we delved deeper into the numbers an interesting trend emerges. By the ASX’s own count, 68% of Australian ETFs are actively managed.5 However, those are not the ETFs that are capturing the attention (and dollars) of everyday Australian investors.
When asked 'What types of ETFs do you invest in?’ the results were clear:
86% invested in passive or index-tracking ETFs
30% invested in thematic ETFs
26% invested in active ETFs
Despite the trend amongst product issuers to bring more active ETFs to market, the vast majority of everyday investors have not yet invested in these products.
That may change over time. 57% of investors surveyed take a core and satellite approach to investing compared to just 24% who invest with core index funds only. Both of these strategies outweigh the 12% of respondents who actively manage their portfolio.
So, what can we learn from this:
The flood of ETFs coming to market is overwhelming for many investors
However, they have become the most popular asset class for everyday investors
Most continue to preference core, index-tracking ETFs
The majority of investors take a core + satellite approach, but have not invested in active ETFs as part of their satellite portfolio
Thanks to Cboe for sponsoring this email
Cboe’s Manager in Focus: PIMCO
For over 50 years, PIMCO has been at the forefront of fixed income investing, blending deep market expertise with innovative strategies.
In this era of rising uncertainty and falling cash rates, their recently-launched range of fixed income ETFs offers Australian investors a new way to access actively-managed, institutional-quality fixed income opportunities.
These new ETFs rely on the same portfolio management teams, time-tested investment process and in-house research that have helped PIMCO become an industry leader, delivering strong outcomes for clients over decades and across every different market environment.
Explore PIMCO’s new range of active bond ETFs where you can access the experts, not just the index.
With such a rise in ETFs, what new opportunities are coming to market that we should be aware of? And how large could this market become?
Both EY and Stockspot have separately forecast that Australian ETFs will reach $500 billion AUM in the next 5 years,1 meaning it will more than double from where it is today. So what are the the new products that will drive this growth?
In our conversation with Oran D’Arcy, Head of Listings at Cboe Australia, he specifically mentioned options ETFs as a theme to watch.
Oran (35:05): One of the key things we see in the US at the moment that is certainly going to come here we feel is options driven ETFs.
Now, they're ETFs that have embedded options. They act very much like a structured product. So what they try and do is achieve a desired outcome by using the ETF wrapper and embedding options within that.
To give you an example of what that might look like, there are a very successful cohort of products called buffered strategies. So a buffered strategy, for example, is a defined outcome, ETF. So for example, if you in the US want to buy the S&P 500, you want to get exposure to that, but you're a little bit risk averse. You can buy this product that will give you a 10% downside protection or a 20% downside protection or a 30% downside protection, which is you get to choose and in return you give a little bit of your opportunity to earn, you cap the top end of it a little bit.
These options ETFs have exploded in popularity in the US over the past 5 years, now with more than $170 billion AUM, and will be a much bigger part of the Australian ETF-mix going forward.
The other noticeable trend has been the proliferation of active managers launching ETFs. This has been a trend globally, with the active manager’s share of ETF AUM expected to rise from 7% today to 20% by 2030.2 This has come as fund flows into other active management structures fall.
We’ve found the below resources useful to keep our finger on the pulse of the changing ETF landscape in Australia, and where the next exciting opportunities may arise:
Tune in to some of our content from the past month. All of these episodes are accredited by the Financial Advice Association of Australia for CPD points. To claim your CPD Points:
Listen to or watch the episode
Follow the link in the show notes or YouTube description to complete the CPD Quiz
Complete the 3-question CPD quiz
We’ll email you your CPD certificate
Here’s just a sample of what is waiting for you on YouTube, Apple Podcasts, Spotify or wherever you listen to podcasts.
Hear from some of Australia’s top advisers:
And from some of our most successful fund managers: