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ETFs

Stage set for act two in ETF evolution

The Australian exchange-traded fund (ETF) market is set for its next stage of development in 2016, a specialist fund manager has predicted.

“The ETF market in Australia has almost reached what I call the end of act one,” iShares head of Australia Jonathan Howie said.

“The end of act one means you’ve actually issued enough products on the stock exchange for investors to be able to make decisions on building portfolios.

“It’s lovely to be able to buy US securities for seven basis points, but if that’s all you can do, it’s kind of a one-trick pony and it’s a nice idea, but it’s not a holistic solution.”

As a result, Howie predicted a significant number of ETFs would be added to the existing 138 offerings on the Australian Securities Exchange.

To that end, he revealed iShares was planning to launch more ETFs throughout the year.

The end of the first act also signalled the end of the initial education process on those types of product, he added.

“There are enough financial advisers and ETF trustees now who know what an ETF is and understand why they are useful in their portfolio,” he said.

“So I actually think we’re going to enter into act two, which is that really rapid growth in the industry where it basically goes vertical for a couple of years.

“We’ve seen it in the US, we’ve seen it in Europe and every other ETF market in the world, and I think we’re there now.”

He said he expected the ETFs set for launch in 2016 would be those that better supported longer-term investment strategies as well as more niche plays.

“A lot of investors want a really simple buy-and-hold solution, where if they want to make asset allocation changes from time to time they can, but in the main will want to buy a portfolio and hold it for the long term,” he said.

“The other part you’ll see is a continuation of the more niche exposures that give investors the ability to start making some second order decisions with their portfolios.”

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