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ETFs slump in August as investors change tactics

Founder and Publisher of the Switzer Report
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Investors cashed in their Exchenge Traded Funds (ETFs) in August, bucking the solid growth trend that has been in place for the past three years, figures show.

Australian investors redeemed about $70 million worth of ETF assets in August, according to figures from the BetaShares Australian ETF Review.

Drew Corbett, head of investment strategy at BetaShares said the net withdrawal, while against trend, was small and reflected a change in the types of ETFs investors were interested in. He said it was not a sign that the asset class was losing steam.

“While we have seen a slight contraction and small redemption of units in the ETF market across August, structurally the market looks set to continue to grow strongly,” he said. “In addition, looking beyond total market flows we see interesting signs of money moving between competing products, indicating greater maturity being introduced into the ETF landscape.”

Prompting this “maturity” has been a rise in volatility in the market over the past month, which has caused stock prices to see-saw wildly and investors to become more selective with their assets. High ETF turnover generally goes hand-in-hand with large swings in stock prices.

“During turbulent times, average daily turnover of ETFs increases, proving the depth of liquidity available for investors,” Mr Corbett said.

The BetaShares review found that ETFs with lower fees performed better in August. For example, Vanguard’s lower cost broad market product (tracking the S&P/ASX 300) saw an increase in net investments of approximately $11 million during the month in contrast to State Street’s broad market product (tracking the S&P/ASX 200), which experienced net redemptions of approximately $15 million.

Investors were also drawn to ETFs with Australian dollar hedged gold.BetaShares found that Of the two gold exchange traded products – BetaShares’ QAU (which holds physical bullion, but is Aussie-dollar hedged) saw strong inflows of approximately $10 million. On the other hand, ETF Securities’ unhedged gold product (GOLD) experienced a net redemption of about $25 million.

Meanwhile, trading in ETFs exposed to precious metals remained high, indicating that investors continue to seek refuge in presious metals from the volatility in the markets.

The worst performing ETF were those dealing in currencies. The review found that there were net outflows in currency products in August, indicating that investors are currently reluctant to take a view on a weakening Aussie dollar.