BetaShares Crypto Innovators ETF (ASX: CRYP) rises 214% to be the best 2023 ETF performer. Aussie ETF industry records highest annual increase in funds under management in 2023.
The Australian ETF industry’s final numbers for 2023 are in with BetaShares Crypto Innovators ETF (ASX: CRYP ) the top performer followed by the Global X 21Shares Bitcoin ETF (CBOE: EBTC ).
Crypto made a strong comeback according to the BetaShares Australian ETF Review for 2023, with CRYP up 214.5%, followed by EBTC, up 150.9%.
The Global X 21Shares Ethereum ETF (CBOE: EETH) also had a good year in 2023, rising more than 90%. Launched in May 2022, EBTC and EETH are Australia’s only spot cryptocurrency ETFS that track the price performance of Bitcoin and Ethereum respectively in Aussie dollars.
The US Securities and Exchange Commission (SEC) only last week approved spot bitcoin ETFs from a range of fund managers, including financial titans BlackRock and Fidelity.
After the winter of 2022, crypto had a much better year in 2023. Bitcoin, the world’s most famous cryptocurrency, rose 154.37% last year.
Also on the top-performing ETF list for 2023 were those with other technology exposures, including the Global X Fang+ ETF (ASX:FANG) and Global X Semiconductor ETF (ASX:SEMI).
The FANG stocks, which include Alphabet, Amazon, Apple, Meta, Microsoft, NVIDIA and Tesla, had a strong performance in 2023, driven by excitement in artificial intelligence (AI).
The US NASDAQ index, the bellwether for the global technology sector, rose more than 44%.
Record year for ETF growth, not so good for unlisted funds
The Australian ETF industry recorded its highest annual increase in funds under management (FUM) in 2023, ending the year at $177.5 billion (ASX+CBOE), representing 33% year-on-year growth.
BetaShares Chief Commercial Officer Ilan Israelstam says the industry is set to grow $43.7 billion in 2023 – an industry record in terms of annual dollar growth.
“Two-thirds of this growth has come from market appreciation and the rest has come from investor inflows and unlisted fund conversion activity,” he says.
In total, the Australian ETF industry received $15 billion in net inflows, in a year where the unlisted fund industry sustained net outflows of -$36.9 billion, the worst year on record for Australian managed funds.
Israelstam says with the exception of 2021, ETFs have now received higher flows than unlisted funds in four of the past five years.
“Most striking of all, if you look over a longer period – since the launch of the Australian ETF industry in 2001 – the Australian unlisted managed fund industry is now negative,” he says.
“This clear investor preference for ETFs, plus the increasing conversion activity we are seeing from unlisted managed funds into active ETFs, represents a significant changing of the guard in the Australian asset management industry.”
Top inflows and outflows for 2023
Israelstam says strong inflows coupled with robust performance have resulted in the BetaShares NASDAQ 100 ETF (ASX:NDQ) entering the top 10 largest products this year.
Other new entrants to the top 10 were BetaShares Australia 200 ETF (ASX:A200) and, as a result of converting itself into an active ETF this year, Dimensional’s Australian Core Equity Trust (DACE).
Israelstam says given market volatility investors have pulled back to core allocations in 2023 with the biggest flows to the three biggest broad Australian equity ETFs.
Fixed income products also experienced strong inflows, with four of the top 10 products for inflows in the cash and fixed income category.
“The table of the largest outflows at a product level provides a stark illustration of the demand for passive rather than active ETFs by investors in the course of 2023,” says Israelstam.
“Notably, seven of the top 10 funds for net outflows were active ETFs, with Magellan’s MGOC fund receiving net redemptions totaling $2.5 billion each month of the year as well as significant outflows in their other active ETFs.”
Fixed income popular as investors sought defensive stance
Israelstam says with investors seeking a more defensive stance in their asset allocations, along with increased income/yield opportunities, fixed income ETFs were the number one broad category for inflows in 2023.
Australian equity ETFs were the second most popular category with international equities taking third place, as of 2022.
“We expect this to change in 2024 as the rate environment becomes more accommodative, and we fully expect investors to take on more meaningful growth-oriented exposures typically found in global equity ETFs going forward,” says Israelstam.
There were very limited outflows at a category level – with gold and European equities the categories with the highest level of outflows in 2023.
Biggest year on record for product launches
As the number of Aussie ETF investors grows, so has the number of ETF products. 2023 was a record year, with 56 new ETFs launching on the ASX and CBOE, while there were eight closures over the same period.
This compared to 52 launches and 13 closures in 2022. There are now 367 exchange-traded products trading on the ASX & CBOE.
“In what is certainly an accelerating trend, a large proportion of the new launches in 2023 were active ETFs (46% or 26 funds), with the majority of these launches through the creation of traded classes of existing unlisted funds, which we call conversions,” says Israelstam.
He says there are now 94 active ETFs trading on Australian exchanges with a total of ~$35 billion of FUM, but the vast majority of these assets come from existing FUM converted to the exchange through the open class structure.
“The actual FUM of active ETFs currently held on CHESS, which gives us the best view of the extent to which investors are using the listed version of the product, is ~$9.5 billion,” says Israelstam.
“This CHESS FUM is very concentrated with the largest 10 products representing >70% of this figure.”
“We expect continued growth from this category, but to date we haven’t really seen widespread adoption of exchange-traded active ETFs,” says Israelstam.
He says there are currently 47 issuers of ETFs in Australia, with eight new issuers joining the market in 2023, all of whom were active managers.
Popularity of ETFs continues to climb
Israelstam says in line with the positive net flow activity, there is still solid growth in the number of Aussie ETF investors.
There are now more than 2 million Australians investing in ETFs, representing investor growth of 7% over the previous year.
Annual ASX ETF trade value remained stable after a record year in 2022 of $117 billion with a total of $115 billion of ETF value traded on the ASX in 2023.
What BetaShares accomplished in 2023 and predictions for 2024
Heading into 2023, Israelstam predicted that market conditions would continue to act as a barrier to industry growth, but expected net inflows to remain consistently positive and eventually for the industry to return to a growth base.
As such, BetaShares predicts that total industry FuM will exceed $150 billion in assets at the end of 2023.
“While I was right about positive inflows, I did not predict that market conditions would end up being anywhere near as positive as they were and thus total industry size would be underestimated by a reasonable margin,” he says.
“In terms of 2024, we believe the industry will continue to benefit from increased investor adoption and inflows combined with positive markets.
“As such, we forecast total industry FuM to exceed $200 billion at the end of 2024 and could reach as high as $220 billion depending on market conditions.”
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