ETF trends for ASX investors to watch in 2024

Exchange-traded products (ETPs) might just be the hottest investment vehicles in the current market. Flows to these investment products outstripped unlisted funds in 2023 in both Australia and the US.

In Australia, total funds under management for ETPs on the ASX stands at $184.68 billion as of February 2024 - which is pretty impressive, when you consider that is 17.5 times the market capitalisation of a decade ago.

The past two years have seen a record number of new listings – 93 new funds in total. There have already been six new listings across the ASX at the start of 2024. Taking a closer look at the listings of the past year offers a telling picture of the investment trends for the market.

ASX Investor Survey 2023

New listings by numbers

• There were 52 new ETFs admitted to the ASX in 2023 and 41 in 2022.

• Over 40% of last year’s listings were active ETFs.

• Betashares was the most prolific issuer, with 11 new ETFs listed on the ASX in 2023.

• New issuers to the ASX ETP market included: Dimensional, Macquarie, L1 Capital, Milford, Aoris and Ellerston.

Here are some of the trends to watch in new listings.

1. Actively Managed Funds

Actively managed funds have only been a relatively recent addition to the ETP space. ASIC placed a brief ban on them in 2019 but once this was lifted, more than 70 active strategies joined the ASX.

“We are expecting to see continued growth in the range of active ETFs from issuers bring new products and strategies to the ASX,” said Rory Cunningham, Senior Manager for Investment Products at the ASX.

There’s added incentive to do so – beyond the ability to reach a much broader investor base.

“We’re seeing a lot of active funds getting pressure from investors because their close-ended structure leads to a big discount on net tangible assets that can be closed if they switch into an ETF structure,” said Chris Brycki, founder and CEO of Stockspot.

In fact, half of the six new listings in 2024 are actively managed, with VanEck and Claremont offering ETPs in this space.

That said, it’s worth looking a bit deeper into what is meant by an active strategy.

On one hand, you have issuers like Ellerston or L1 Capital launching exchange-traded versions of their existing unlisted managed funds. The aim is to make their strategies more accessible to a wider range of investors – after all, there’s a much lower entry point for ETPs, as little as $500 minimum based on your selection of trading platform. Some examples listed in 2023 include:

• Ellerston Asia Growth Fund (Hedge Fund) (ASX: EAFZ)

• Dimensional Australian Core Equity (Managed Fund) (ASX: DACE)

• Janus Henderson Sustainable Credit Active ETF (Managed Fund) (ASX: GOOD)

On the other, you might have geared strategies – many of which may have been launched by issuers you might traditionally think of as passive index product providers. A geared strategy will use derivatives and other tools to offer leveraged exposure to an index. You could ‘short’ an index if you think it is likely to fall or go ultra ‘long’ if you think the index will continue to rise. Some examples of this include the BetaShares Geared Long Aus Gov Bond (Hedge Fund (ASX: GGAB) which was listed in December last year or the VanEck Geared Aust. Equal Weight Fund (Hedge Fund) (ASX: GMVW), listed in February this year.

2. Fixed Income Funds

As interest rates rose, fixed income suddenly looked attractive again – and there were 13 new listings in this asset class across 2023, ranging from actively managed options to passive options covering Australian and US government bonds and corporate bonds.

Some examples include:

• Macquarie Dynamic Bond Active ETF (Managed Fund) (ASX: MQDB)

• VanEck 1-3 month US Treasury Bond ETF (ASX: TBIL)

• Global X USD Corporate Bond ETF (Currency Hedged) (ASX: USIG)

Will it continue in 2024?

“With higher interest rates, we are expecting to see continued issuance of ETFs in the fixed income asset class,” said Cunningham – and that’s even with the prospect of rate cuts.

3. Cryptocurrency

While some cryptocurrency ETFs are listed on CBOE, none are currently available on the ASX. As a note, the Betashares Crypto Innovators ETF (ASX: CRYP) doesn't invest in cryptocurrencies, it invests in infrastructure and services providers behind this space, such as exchanges or companies that build crypto mining equipment. It is currently the key exposure option to cryptocurrencies on the ASX.

“The ASX introduced changes to its admission rules in 2022 to facilitate the admission of ETFs that invest in crypto assets,” said Cunningham, but there are indications that we may see the first offers this year.

The trigger of course being the SEC’s approval of 11 spot bitcoin ETFs in January this year. The SEC is yet to approve any other cryptocurrencies like Ethereum.

Monochrome Asset Management announced its plans to register the Monochrome Bitcoin ETF to trade under the code IBTC pending ASX approval. Betashares has also indicated plans.

What's coming next?

While these are the key trends across Australian listings, it’s also handy to take a look at more sophisticated markets like the US and Europe.

You can assume we’ll eventually catch on to some of the interesting innovations seen in these regions, such as ‘target date’ ETFs to support the retirement market.

This article first appeared on Livewire Markets.