ASX ETF provider BetaShares says last year was a record year for growth in exchange-traded funds (ETFs).
BetaShares co-founder Ilan Israelstam says ETFs received $15 billion in net inflows from investors in 2023.
This, along with asset value appreciation, helped the Australian ETF industry achieve its highest increase in annual funds under management (FUM) ever, up 33% in 2023 to a total market cap of $177.5 billion.
While this was happening, unlisted Australian managed funds had their worst year on record, with net outflows of $36.9 billion.
Israelstam said:
The industry grew $43.7B in 2023 – an industry record in terms of $ annual growth. 2/3 of this growth came from market appreciation with the remainder deriving from investor inflows and unlisted fund conversion activity.
Israelstam said Australians had fully embraced ETF investing via the ASX and Cboe Australia since the products were introduced in 2001.
He added that investors' clear preference for ETFs today was leading to many unlisted managed funds being converted into actively managed ETFs, representing "a significant 'changing of the guard' in the Australian asset management industry".
What type of ASX ETFs did investors favour in 2023?
The net inflows of $15 billion into ETFs last year represented a 12% increase on 2022.
Receiving the most funds were fixed-income, Australian shares and international shares ETFs.
Fixed-income ETFs received $5.3 billion, up from $3.6 billion in 2022. Israelstam said this reflected investors' desire for defensive assets and higher income in an uncertain economy last year.
Australian shares ETFs received $5.2 billion, up from $4.4 billion in 2022. International equities ETFs received $2.9 billion, down from $3.3 billion in 2022.
The top 5 performing ETFs in 2023
BetaShares has also revealed the top five performing ETFs trading via the ASX and Cboe in 2023.
Although investors ploughed more funds into defensive ETFs last year, it was growth ETFs that delivered the best performance. This was largely due to the broader market turnaround in the second half.
At the top of the list is BetaShares Crypto Innovators ETF (ASX: CRYP), which delivered total returns of 215%.
Here are the others making up the top five ETFs of 2023 for total returns. You'll note that all of them provide exposure to cryptocurrencies and tech shares.
Two of these products trade on the Cboe exchange (formerly known as Chi-X) rather than the ASX. They are the Global X 21Shares Bitcoin ETF (EBTC) and the Global X 21Shares Ethereum ETF (EETH).
These are managed investment trust ETFs that provide investors with an interest in bitcoin and ether held in cold storage by Coinbase (NASDAQ: COIN), the world's largest cryptocurrency custodian.
What companies are you buying with the No. 1 ASX ETF?
According to the BetaShares Cryp fact sheet, this crypto ETF aims to track the performance of an index (before fees and expenses) comprising global companies at the forefront of the crypto economy.
The top three holdings in the ETF are Marathon Digital Holdings Inc (NASDAQ: MARA) at 12.4%, Coinbase Global Inc (NASDAQ: COIN) at 9.9%, and Galaxy Digital Holdings Ltd (TSX: GLXY) at 9.4%.
More ETF options for investors in 2023
Last year, 56 new ETFs were launched in Australia, making it the biggest year on record for new products.
Israelstam said:
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 being via the creation of traded classes of existing unlisted funds (which we call 'conversions').
At the end of 2023, the biggest ASX ETF remained the Vanguard Australian Shares Index ETF (ASX: VAS). It tracks the performance of the S&P/ASX 300 Index (ASX: XKO) and has a market cap of $14.38 billion.
What's next for ASX ETFs in 2024?
Israelstam predicts that investors will continue to adopt ETF investing this year, and markets will be more positive. He reckons total ETF FUM could rise to $200 billion and go as high as $220 billion in a strong market.
In terms of the types of ETFs that investors may favour in 2024, Israelstam thinks international shares will be more attractive as interest rates come down.
He said:
.. we would fully expect investors to adopt more meaningfully growth oriented exposures typically found in global equities ETFs going forward.
We recently documented the top performers of 2023 among ETFs holding only Australian shares.
There was a clearly dominant theme among Aussie shares ETFs, and it wasn't crypto or tech. It was environmental, social, and corporate governance (ESG).
