Australian investors could save up to $3.9 billion annually by switching to lower-cost ETFs from unlisted managed funds
The Australian Exchange Traded Fund (ETF) market experienced a record-breaking year in 2024, after reaching $246.4 billion in size, with a new report from Global X revealing Australian investors could save up to $3.9 billion annually by switching to lower-cost ETFs from unlisted managed funds.
According to the latest Australian ETF Landscape H2 2024 report by Global X ETFs Australia, the 38.7% growth of the ETF market in 2024 was driven by a record $31 billion in net inflows.
“This growth was propelled by favourable market dynamics, and a notable shift of unlisted active funds transitioning into active ETFs. These factors demonstrate the rising appeal of ETFs as efficient and accessible investment vehicles and the increasing sophistication of the ETF market,” said Marc Jocum, Global X Senior Product and Investment Strategist.
The Global X report reveals most ETF flows are going into lower-cost ETFs, with nearly two-thirds directed to ETFs charging less than 0.25% p.a, while pricier ETFs have seen outflows, as the chart below shows.
“Since the first index fund was launched in 1976, indexing has saved global investors around $1 trillion, with ongoing annual savings estimated at US$150 to US$200 billion.
“Our analysis of fees paid by Australian investors in unlisted managed funds shows that switching to lower-cost ETFs could save investors up to $3.9 billion annually,” said Jocum.
“The migration to low-cost investing from expensive unlisted funds will likely continue in 2025 and beyond, with investors seeking cheaper vehicles to relatively poorly performing unlisted managed funds, with the majority of equities and fixed income active managers underperforming over the long term, and generally getting worse with time.
“The most recent research from S&P Dow Jones Indices, the SPIVA Australia Scorecard for the first half of 2024, found that around 90% of Australian equites managers underperformed over 10 years to 30 June 2024, and 88% underperformed over 15 years. Australians are increasingly unwilling to pay the high fees charged by active managers, especially as their performance continues to lag, which has ultimately led to fee compression in the broader industry.
“ETFs are attractive due to their low cost, transparent performance, they are very liquid and ease to use. As more capital shifts from managed funds to ETFs, total fees paid across the financial industry will likely decline, which is bad news for high-cost fund managers, but a win for investors. This trend underscores Australian investors’ fee sensitivity and the use of low-cost ETFs as key building blocks in investment portfolios,” he said.
“The ETF market has also reached a key milestone of a quarter of a trillion dollars in assets under management (AUM), boosted by the largest yearly increase of $69 billion in 2024. The Australian market has enjoyed a 10-year compound annual growth rate (CAGR) of 32.4% p.a. and we could see the ETF market reach more than $300 billion in AUM by the end of 2025.”
