These 5 resources and property ETFs are topping the market
Australia's ETF market has more than doubled in the last 5 years, growing from $17.8 billion to $50 billion since 2015.
If the ETF market were to have one motto, 'slow and steady wins the race' might be the most apt.
In the last decade, index exchange-traded funds have built a reputation as being one of the safest, albeit somewhat boring, investment products on the market. They work by offering investors a basket of assets which typically rise slowly over many years, and they're cheap because they require less legwork from fund managers.
However the latest annual ETF report from robo-advice platform Stockspot proves they can be far more than a slow-burn investment product, with the top performing ETF - the ETFS Physical Palladium - delivering an astounding 52% return over 12 months.
Others in the top 5 all saw returns of more than 25% between March 2018 and March 2019 - an impressive feat considering the ASX200 index rose just 3% during that same time.
According to the report, the 5 ETFs delivering the highest returns between March 2018 and March 2019 were all resources and property funds - reflecting lower interest rates and strong demand for commodities from China.
Of course there are two sides to that shiny coin. At the other end spectrum, some of the worst performing ETFs saw losses of up to 14%, disproving the notion that all ETFs are low-risk.
The best performing ETFs in the last year
| ASX CODE | ETF NAME | 1 YEAR TOTAL RETURN |
|---|---|---|
| ETPMPD | ETFS Physical Palladium | 52.40% |
| MVA | VanEck Vectors Australian Property ETF | 33.90% |
| QRE | BetaShares S&P/ASX 200 Resources Sector ETF | 27.90% |
| OZR | SPDR S&P/ASX 200 Resource Fund | 27.30% |
| VAP | Vanguard Australian Property Securities Index ETF | 26.20% |
Source: Stockspot | March 2018-March 2019
The worst performing ETFs in the last year
| ASX CODE | ETF NAME | 1 YEAR TOTAL RETURN |
|---|---|---|
| KSM | K2 Australian Small Cap Fund (Hedge Fund) | -14.30% |
| QAG | BetaShares Agriculture ETF-Currency Hedged (Synthetic) | -11.70% |
| KII | K2 Global Equities Fund (Hedge Fund) | -11.70% |
| IKO | iShares MSCI South Korea Capped Index ETF | -9.80% |
| BNKS | BetaShares Global Banks ETF – Currency Hedged | -9.70% |
Source: Stockspot | March 2018-March 2019
Australia's booming market
Exchange traded funds (ETFs) are continuing their meteoric rise in Australia, with the market expected to hit $100 billion over the next 3 years, according to the latest research from investment platform Stockspot. Despite its growth, that figure will make up just 0.6% of the global ETF market, which is predicted to hold $17 trillion by 2023.
The company's annual ETF report found that in the past year, Australians that had invested in ETFs instead of active fund managers had saved $300 million in fees, with that number expected to increase to $660 million by 2022. While actively managed funds typically charge around 1% in fees, ETF management fees are often less than half that cost.
According to Chris Brycki, founder of Stockspot, which uses ETFs as its primary investment tool, the growth in the ETF market shows that more people are becoming aware of the benefits of the product.
"Considering ETFs still only make up 2% of the share market in Australia, $300m saving is huge. This figure will increase exponentially as more Australian investors gravitate towards these wonderful low-cost wealth building products," said Brycki.
"Whether you're investing in Australian shares, international shares or bonds, more than 80% of active fund managers have consistently failed to beat the index. It's no wonder investors are abandoning risky stock picking for the safer option of tracking the market index."
Bond and global market ETFs rising
Bond ETFs attributed to almost one-third of all new money into ETFs in 2018, almost doubling (46%) funds under management. The bond market typically performs better during periods of global instability as interest rates fall; in 2018, it was one of the few asset classes to perform well.
"We believe it's a combination of factors. Investors better understand the diversification benefits that bonds bring to their portfolios, and until recently bonds were difficult to access in Australia for most investors. ETFs have made access to bonds simple and more affordable than in the past," said Stockspot investment associate Marc Jocum.
Interest in global share ETFs is also on the rise, with funds growing by 43% over the last 5 years to reach $21 billion, compared to Australian share ETFs, which hit $17 billion according to the report.
The launch of new ETF products on the market has also contributed to market growth. In the past year, 24 new ETFs were launched, 17 of which were global ETFs, 4 fixed income and 3 Australian shares. Of these, 7 were active ETFs.
You can read more on our comprehensive guide to ETFs.
