The rise of the exchange-traded fund (ETF) is not a new trend on the ASX. ETFs, particularly index funds, have been booming in popularity for two decades now. Today, the ASX is home to dozens and dozens of ETFs.
There are your index funds, of course. The most popular of these are ASX ETFs, proving our local preference for Australian shares. But there are also index ETFs covering US shares, international markets, and emerging markets too.
Other ETFs, such as those covering specific sectors, trends, or commodities have also flourished. These days, you can invest in funds that track everything from global cybersecurity companies to oil futures, and gold or silver.
But which ETFs will continue to grow the most over the next few years?
ETF expert points to ethical and responsible investing
ETF provider BetaShares has some ideas about that. BetaShares is one of the ASX's most prolific purveyors of exchange-traded funds.
BetaShares' boss Alex Vynokur was asked about the future of the ETF sector in a report in The Australian this week.
Vynokur identified the ethical and responsible investing sector as the one he reckons will experience the largest growth rates over the next few years. Vynokur estimates that ethical and responsible ETFs are set to explode by $50 billion by late 2028, and even thinks they could hit $100 billion by the end of the decade.
As of 31 March, these ETFs reportedly accounted for $10.1 billion in funds under management (up from $3.5 billion in 2021).
That's despite the best-performing ETFs in recent months and years being those that focus on sectors like resources and energy.
Here's some of what Vynokur said:
There's no doubt the last 12 to 18 months have been volatile for investors… The reality is that investors increasingly recognise there is no need to sacrifice their investment objectives over the long term to build a portfolio that aligns with their values…
While younger investors are perhaps considered the poster child for adoption of ethical and responsible ETFs, we're now seeing increasing adoption from a broad range of Australian investors, including self-managed super funds.
Why are ASX investors flooding into ethical ETFs?
Vynokur identified three reasons for his optimism for ethical and responsible ETFs. He named the growing number of investors who wanted to "align their portfolio with their values while also meeting their investment objectives" for one.
Secondly, he pointed to "the cost-effectiveness" of using ETFs in order to pursue a responsible and values-aligned portfolio.
Thirdly, Vynokur argued that the "growing range of asset classes" that an ETF can provide investors access to is also driving interest in exchange-traded funds in pursuing ethical and responsible investing.
BetaShares currently offers eight ethical/responsible ETFs, including the BetaShares Global Sustainability Leaders ETF (ASX: ETHI) and the Ethical Diversified Growth ETF (ASX: DGGF).
Other ASX options in this space include the Vanguard Ethically Conscious Australian Shares ETF (ASX: VETH) and the iShares S&P/ASX Dividend Opportunities ESG Screened ETF (ASX: IHD).
So it will be interesting to plot the rise of ethical and responsible ETFs over the next few years to see if their growth conforms to Vynokur's strong predictions.
