Investors have been undeterred by the recent COVID-19 induced market volatility and have been flocking to exchange traded funds (ETFs). The number of transactions, and volume and value figures, reached all-time highs.
ETF Securities’ latest Q2 ETF Landscape Report reveals investors’ confidence in ETFs despite the current market turmoil.
The early stages of the COVID-19 pandemic saw a flight to safety in ETFs, via precious metals like gold or broad-based market ETFs.
Kris Walesby, chief executive of ETF Securities, says: “More recent ETF trading suggests investors are looking at recovery with Australian equity and property ETFs particularly benefiting. We also note an increase in shorter-term trading activity, such as cash, commodities and geared funds.”
According to recent data from the Australian Stock Exchange (ASX), pre-COVID-19 crisis ETF trades accounted for approximately 4 per cent of total trades on the ASX. This increased during the pandemic to around 10 per cent of total trades.
Three new ETF products were launched during the pandemic: the VanEck Emerging Income Opportunities Active ETF on 13 February, the ETFS FANG+ ETF on 2 March, and BetaShares’ S&P/ASX Australian Technology ETF on 4 March.
ETFS’ FANG+ ETF holds an equal-weighted portfolio of overseas stocks, including Facebook, Apple, Amazon, Netflix, Alphabet (Google’s parent company), Alibaba, Baidu, NVIDIA, Tesla and Twitter.
The stocks cover the e-commerce, entertainment, automotive and media sectors. NVIDIA is a leading computer graphics company and Baidu is a Chinese equivalent to Google.
Being equal-weighted, rather than asset-weighted. means that each of the ten stocks in the FANG+ ETF has the same value in the portfolio. To achieve this, the portfolio is re-weighted quarterly.
The portfolio is based on an index designed by the New York Stock Exchange (NYSE) to provide a wider tech exposure than the popular “FAANG” stock grouping (Facebook, Apple, Amazon, Netflix and Google, that is, Alphabet). The total market capitalisation of the 10 companies is US$4.7 trillion ($7.2 trillion).
The BetaShares launch is an ETF that provides exposure to the Australian tech sector. The BetaShares S&P/ASX Australian Technology ETF tracks an index that includes WiseTech Global, REA Group, Xero, Afterpay and Carsales.com.
The VanEck Emerging Income Opportunities Active ETF aims to provide investors with a globally diversified portfolio of bonds and currencies in emerging markets. It holds government bonds from South Africa, Uruguay, Peru, Ukraine, Indonesia and Argentina.
The funds have already gained traction with investors and have seen capital inflows of more than $60 million to date.
Walesby says this trend gives ETFS confidence that Australian investors will continue to seek new opportunities in the ETF market to capture attractive buying opportunities.
“This may be a reflection of the appeal of diversification and versatility that ETFs can offer to investors. They realise that they can access a variety of asset classes at a relatively low cost and can be used as the building blocks of multi-asset portfolios,” Walesby says.