Factors That Affected ETFs in Australia This Year

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Exchange Traded Funds (ETFs) have been the choice of Australian investors as their investment vehicle despite the challenges in the global economy and the highly volatile market. ETFs have also been affected when the equity markets dropped.

According to Alex Vyonkur, chief executive of BetaShares, “More Australian investors than ever before have turned to ETFs in this volatile year for financial markets.” He added that ETFs provide a ‘true-to-label’ investment experience and cater to a wide array of investors, from individuals investing for the first time to significant global pension funds.

There were a few factors that affected ETFs this past year. According to Blair Hannon, head of the investment strategy at Global X Australia, the ETF market in 2022 dropped with the market’s fall. In November 2022, it was just under $2 billion.

“ETFs are what we call beta-linked, so if markets go down by a certain amount, then the size of the ETF market will go down a similar amount. But positively, we continue to see very positive net inflows into ETFs, so while the total market size may be down slightly, investors are still allocating into ETFs, which shows they have a place in all market cycles,” the strategist added.

The leading factor that affected ETFs was the inflation and rising interest rates experienced globally. This has driven investor behaviour for the year. Another factor is the broad sell-off in equities and bonds for the previous year. According to Hannon, inflation and the high-interest rates led to sell-offs in equity and bond markets, pushing yields higher.

The strategist mentioned that “it is an unusual phenomena to see both bonds and equities fall simultaneously with basic economic theory teaching there’s an inverse relationship in bonds and share markets.”

The last factor that affected ETFs the previous year was the strong USD compared to AUD. Hannon mentioned that AUD had been sold off significantly as it was lower than USD. However, investors who invested in US equities might see the net benefit.

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