ETFs on the verge of historic milestone – What are investors prioritising?

A new report into the Australian investing landscape shows Aussies are turning to ETFs at a record rate. 

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Exchange-traded funds (ETFs) give investors the opportunity to buy shares in hundreds or thousands of holdings in just one trade.

Global X's Australian ETF Landscape report shows ETFs are increasingly popular amongst Aussie investors.

According to the report:

The Australian ETF market grew 38.7% over the past year to $246.4 billion across 401 products. This was driven by $31 billion in net inflows, positive market movements, and numerous unlisted active funds converting into active ETFs.

The report also noted that the Australian market is now on the verge of reaching a quarter of a trillion dollars in assets, following the largest-ever yearly increase in assets. 

In addition to these milestones, the report also highlighted key investor trends. 

Man looking at an ETF diagram.

Image source: Getty Images

Management costs

Investors are increasingly management fee conscious.

Management fees cover the costs associated with managing the fund, including administrative expenses, research, portfolio management, and compliance.

According to Global X, the majority of ETF flows are going into lower-cost ETFs, with nearly two-thirds directed to funds charging less than 0.25% per year. 

Meanwhile, expensive ETFs have seen outflows, highlighting the growing preference for cost-effective investment options.

An example of a popular low-cost ETF is the Vanguard Australian Shares Index ETF (ASX: VAS).

It is the most popular ASX ETF based on how much money is invested in the fund. 

This fund tracks the S&P/ASX 300 Index (ASX: XKO).

Its management fee is 0.07%, well below the 0.25% benchmark identified by Global X, and it has risen by 36.5% over the last five years. 

US-focused ETFs

Another key trend in 2024 was the investment in the US market.

A record $5 billion in net flows to US equities were invested last year, doubling the previous high set in 2021.

It's no surprise investors wanted exposure to the US market after US equities experienced their best two-year run in a quarter of a century. 

According to the report, this trend could continue, driven by US exceptionalism and the prospect of stronger earnings growth under a pro-markets Trump presidency. 

One option for investors looking for exposure to the US market is the iShares S&P 500 ETF (ASX: IVV). 

This ETF aims to replicate the performance of the S&P 500 Index (SP: .INX), encompassing the 500 largest publicly traded U.S. companies by market capitalisation.

It includes blue-chip companies like Apple, Microsoft, and Nvidia

The ETF has grown by 121.80% over the last five years. 

ASX ETFs – Looking ahead 

The report also identified key trends that could shape the first half of 2025:

  • Expectations are high for the US to lead global markets in 2025 driven by strong economic fundamentals, policy support and improving investor confidence
  • The AI revolution demands renewable energy to be an important source to power its growth, with nuclear and copper playing critical roles
  • Elevated equity valuations may urge investors to adopt a cautious approach to help balance growth potential and stability amidst potential slowing growth, stagflation concerns, and geopolitical volatility

Although the report highlights strong expectations for the US market, it has been a volatile start to the year.

For investors looking to move away from US-focused ETFs, one option is the Vanguard All-World ex-US Shares Index ETF (ASX: VEU).

This ETF provides exposure to many of the world's largest companies listed in major developed and emerging countries outside the US. 

It has provided strong returns over the last five years, growing 54.53%. 

Motley Fool contributor Aaron Bell has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has positions in and has recommended Apple, Microsoft, Nvidia, and iShares S&P 500 ETF. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has recommended the following options: long January 2026 $395 calls on Microsoft and short January 2026 $405 calls on Microsoft. The Motley Fool Australia has recommended Apple, Microsoft, Nvidia, and iShares S&P 500 ETF. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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