From our friends over at Vanguard, this article discusses the recent trends among Australian investors who are increasingly flocking to international equity ETFs.
Australian investors have been lifting their exposure to international equity ETFs. Strong offshore equity market gains, particularly in the United States, continued to lure many Australian investors to international exchange traded funds (ETFs) over the first three months of 2024.
Inflows into ETFs providing broad exposure to the Australian share market remained strong, while inflows into bond ETFs returned to longer-term averages.
The Australian ETF industry’s total assets under management (AUM) increased by $19 billion over Q1 to $191.87 billion, according to data released by the Australian Securities Exchange (ASX) and Vanguard.
This was over $53 billion more than at the end of the 2023 March quarter and reflected a combination of market gains and continuing inflows.
Lured by Offshore Markets
Australian investors added $2.65 billion into ETFs that invest on international equity markets over the three months to 31 March 2024. The inflows into international equity ETFs represented 50% of the total inflows into the Australian ETFs industry over the first quarter.
“Australian investors have steadily been lifting their exposure to international equity ETFs listed on the ASX in a bid to capture the strong returns we’ve seen on offshore markets,” said Adam DeSanctis, Vanguard’s Head of ETF Capital Markets, Asia-Pacific.
“US share markets surged around 24% last year and continued to gain ground over the first quarter, reaching record highs, mainly thanks to the impressive returns from some of the big US technology stocks. It’s no surprise that many Australian investors have been using international ETFs that are listed on the ASX to get a slice of that action.
“As well as investing in ETFs that purely focus on US equities, a large amount of Australian investors’ capital has also been channelled into ETFs that have broader international equity exposures incorporating stocks in the US, Europe, Asia and other regions.”
“This shift in mindset to international equity ETFs saw lower inflows into Australian equity ETFs over the March quarter compared with the last three months of 2023. But, to put that into perspective, keep in mind that Australian equity ETFs still attracted $5.30 billion of inflows in 2023, more than double the $2.20 billion invested into international equity ETFs.”
Meanwhile, Australian equity ETFs attracted just under $1.5 billion of investor capital over the quarter, representing 28% of total ETF inflows.
In a major milestone, the Vanguard Australian Shares Index ETF (VAS) became the first Australian ETF to have over $15 billion in AUM, cementing its long-standing position as Australia’s largest and most popular ETF*.
Vanguard continues to maintain the top spot in the Australian ETF industry as the largest ETF issuer by AUM, with $55.42 billion (29% market share).
Bond ETF Inflows Recede
After record investment inflows into bond ETFs in 2023, total inflows into the fixed interest ETF category declined over the March quarter from the levels recorded in Q4 2023.
Australian fixed interest ETFs recorded inflows of $694 million compared with $764 million in the three months to 31 December 2023, while international fixed income ETFs received inflows of $108 million compared with $401 million over the previous quarter.
“The strong inflows into fixed interest ETFs that we witnessed last year reflected global expectations for higher bond returns over the longer term,” said Mr DeSanctis. “Those expectations haven’t changed, but it’s evident from the latest quarterly inflows that there is a strong focus on equity markets, particularly international markets.”
*Based on assets under management as at 31 March 2024.
Australian ETF Market Net Cash Flow by Asset Class (Q1 2024 v Q4 2023)
| Asset Class | Q1 2024 Cash Flow ($m) | Q4 2023 Cash Flow ($m) |
|---|---|---|
| International equity | 2,647 | 1,930 |
| Australian equity | 1,484 | 1,899 |
| Australian Fixed Income | 694 | 764 |
| Commodity | -112 | 32 |
| International fixed income | 108 | 401 |
| Cash | -21 | 191 |
| Multi asset | 75 | -5 |
| Infrastructure | 308 | -50 |
| Australian property | -27 | 66 |
| International property | 134 | 106 |
| Currency | -6 | -19 |
| Total | 5,284 | 5,313 |
Source: Monthly ASX Investment Products data aggregated by quarter and by year.
Top 5 Vanguard Australia ETFs by Cash Flow (Q1 2024)
| Product | ASX Code | Cash Flow ($m) |
|---|---|---|
| Vanguard MSCI Index International Shares ETF | VGS | 339 |
| Vanguard Australian Shares Index ETF | VAS | 283 |
| Vanguard Australian Shares High Yield ETF | VHY | 93 |
| Vanguard All-World ex US Shares Index ETF | VEU | 92 |
| Vanguard Global Aggregate Bond Index (Hedged) ETF | VBND | 81 |
Source: Monthly ASX Investment Products data aggregated by quarter.
Important Information
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