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Published 14 June 2012 04:12, Updated 14 June 2012 04:33
Education: Amanda Skelly says people are wondering where to put their money Tamara Voninski
The popularity of exchange-traded funds continues apace despite recent market volatility, with fund managers saying that a second wave of interest is coming from the financial planning community.
ETFs first appeared on the local investment scene in the early 2000s and they allow investors access to equity or bond indices.
They are a particularly attractive investment for those seeking exposure to fixed-income products, as for many retail investors the minimum entry point to hold bonds directly can be too high.
Because ETFs are traded on stock exchanges, they also offer investors the same level of liquidity as shares in individual companies.
Russell Investments is a player in the ETF space and director of ETFs, Amanda Skelly, says that while there was early interest in the product from sophisticated self-managed super fund investors, financial planners are now getting in on the game.
This, she says, is partly due to a growing disillusionment with active investing since the financial crisis and financial planners looking for ways to take the costs out of their business.
“After the crisis there was a move away from actively managed funds and investors are also looking to save costs,” Skelly says.
One key benefit of an equities ETF, for example, is that investors only have to trade once to get exposure to a wide range of stocks, reducing the transaction costs that sort of exposure would normally incur if investors bought the shares individually.
The advantages for planners is that ETFs typically have low administration costs which, as they move to a fee-for-service model, can pass onto their clients to make their services cheaper.
For Russell, its bond ETFs have been particularly popular, with almost 50 per cent of the take-up of two of them – a semi-government bond ETF and a select corporate bond ETF – coming from the advisory market.
Skelly says that some of the initial resistance from advisory brokers has decreased. Brokers were particularly wary of equity ETFs, as their business model relies on research that identifies individual stocks that will boost client portfolios. However, she says brokers now see bond ETFs in particular as useful in offering a diversification to hybrids and term deposits.
“We’re really trying to educate people on ETFs,” she says. “People are really nervous in this market – people are nervous about equities, they are nervous about property. A lot of people are wondering where to put their money.”
Globally, the ETF market is worth $US1.4 trillion, while the Australian ETF industry is worth about $4.3 billion, according to a recent report by the Australian Securities and Investments Commission.
The research manager at Lonsec, Michael Elsworth, says “ETFs have well and truly arrived and are an important category for advisers and their clients”.