Exchange Traded Products are winning the distribution war

Analysis of net funds flow in the Australian investment products market shows that Exchange Traded Products (ETPs) are stomping the historical world of unlisted unit trusts.

In the 12 months to March 2024, total net flows for ETPs and unit trusts combined was estimated at negative $9.2 billion on total assets of $720 billion as at 31 March 2024, according to Rainmaker Information’s Wholesale Managed Funds Net Flows Report.

“Strong market returns have hidden a lot of the damage done to the market,” according to John Dyall, head of investment research at Rainmaker Information.

“If you look at revenues, there’s no crisis.”

“Market returns contributed 9% to the growth of total assets, while net flows lost 1% based on the assets under management as at March 2024.”

“The real issue is that investors are preferring the distribution channel of ETPs over the traditional unit trust structure.”

“The other issue is whether the mix of options available in unit trusts is meeting the needs of today’s investors in the same way that ETPs are.”

“There are more assets in unit trusts by a long way, and those assets increased by $42 billion in the past year, but without the market gains they would have lost 4% or $23 billion in the past year from net flows alone,” Dyall said.

ETPs, on the other hand, increased their assets under management by around 30% or $37.5 billion through a combination of market returns and positive net flows of $15 billion.

The ETPs with the highest net flows over the year to 31 March 2024 were iShares Global Bond Index Fund ($1.575 billion), Betashares Australia 200 ETF ($1.281 billion) and Vanguard Australia Shares Index ETF ($1.279 billion).

In terms of net flows for individual products, ETPs had 150 products with 12-month positive net flows versus 91 with negative net flows.

This contrasts with unit trusts which had a positive to negative flow ratio of 307 to 561 respectively.