Key Points
- 2021 was a top year for ETFs, but a new report finds 2022 could be even better
- With index funds at saturation, we can expect some more exotic ETF offerings
- Investors are using ETFs in new ways, such as hedging
Last year was a great one for ASX exchange-traded funds (ETFs). As we've covered extensively here on the Fool, 2021 not only saw total funds under management in the ETF sector hit record highs. But we also saw the successful listing of a number of new ETF products. One, the BetaShares Crypto Innovators ETF (ASX: CRYP), actually broke the trading volume record for a newly-listed fund.
So with all that success under the belt, what does 2022 hold in store for ASX ETFs?
Well, a report in The Australian this week reveals that investment bank Citi has released a 'deep dive' report into the global ETF sector and its outlook for 2022.
The report finds that the global index fund market is reaching saturation point. It found the "most widely-followed indices have been replicated by ETFs". As such, the report finds that ETF providers are increasingly motivated to "expand towards more novel product approaches".
We have seen this with our own eyes on the ASX. Although 2021 welcomed many new ETFs to the market, almost none of them were index funds. Instead, the new funds extended coverage of thematic trends or select industry groups. Other 2021 ETF debuts included VanEck Vectors Global Clean Energy ETF (ASX: CLNE) and BetaShares Cloud Computing ETF (ASX: CLDD).
ETF growth on the ASX could just be getting started
The report finds that this trend is likely to continue into 2022 as investors increasingly look for diversification outside the traditional index fund structure.
Further, Citi is predicting that the high inflows we saw last year will continue. This will be driven by "the very strong returns of recent years". It also sees interest in ESG and ethical investing continuing to dominate investors' interest.
This trend, the bank believes, may continue to benefit from a tailwind of improving global standards in ethical/ESG analysis. This, the report finds, has been beset in the past by lax standards and 'greenwashing'.
Interestingly, Citi also predicts a new way in which investors (especially those on the professional side) will use ETFs. It points to a trend in the US where institutional investors employ ETFs for 'tactical' moves such as hedging. The bank reckons this will expand to all markets, including Australia.
So it looks as though the rise of ETFs on the ASX is certainly here to stay if this report is to be believed. So get ready to hear more about ASX ETFs as we move through 2022.
