Far from the stereotype of speculative day-traders, young Australians are finding plenty to like about exchange-traded funds (ETFs).
Aged between 25 and 39 years, Millennials now represent almost half of all Australians investing in ETFs, according to the latest research by investment house State Street Global Advisors, attracted by instant diversification.
It marks a coming of age for the investor demographic, which has roughly doubled its market share over the last 20 years, accelerated in the last 12 months as the pandemic flooded the market with cash.
More than $39 billion of that ended up in exchange-traded products (ETPs), with the space growing faster in Australia than anywhere else in the world.
The surge has been led by some of the county’s youngest investors, according to State Street’s asset management arm SPDR.
“Better financial education and improvements in technology have helped make ETFs more accessible to younger Australians. Millennials are the ETF generation of the 2020s,” Meaghan Victor, head of SPDR ETF Asia Pacific, said.
She notes that the Australian ETF has grown five-fold in the last five years to hit $116 billion, with even conservative estimates putting the market on track to double again by 2024.
The enormous growth has been accelerated by recent volatility, as investors look to diversify their portfolios and buy into emerging trends. More than one in two say their main allure is in capitalising on market crises.
“What we have seen during market crises is that ETF trading volumes have surged, highlighting that ETFs continue to function as originally intended — as buffers and sources of liquidity in stressed markets,” Victor said. “Although there are more active ETFs to choose from than ever before, ETFs that track an index still dominate, with 82% of investors using this style.”
Young women leading on ETFs
While much has been made of the more speculative pursuits of some new investors, the data indicates the majority are perfectly content with a passive long-term strategy, similarly buoying the fortunes of roboadvisors.
Likewise, the last 12 months have been transformative in terms of overhauling just who is investing.
“Young women are the fastest growing cohort of ETF investors in Australia, showing that the gender investment gap may be closing. The trend is gathering pace, thanks to lower barriers to entry,” Victor said.
Twenty years ago, women made up just one in ten ETF investors. Today they are one in four, and are steaming in at such a pace they are expected to hit parity within five years.
The rise of the young and female investor in Australia is already having signficiant consequences, as financial advice becomes increasingly accessible online – spurring the proliferation of young, largely female financial influencers on platforms like TikTok.
During the pandemic, the millennial cohort have increased their portfolio exposure to ETFs by more than other groups.
Across all age groups, investors have an average of $170,000 invested in ETFs, ranking the products as the third highest-value of all investments held.
At an average of $235,000, Australian shares still represent the largest portfolio exposure followed closely by investment properties at $205,000. As interest rates hit the floor, fourth-placed term deposits have fallen a long way behind at $100,000, trailed further still by international shares and unlisted managed funds.
By comparison, the average investor hold just $5,000 worth of cryptocurrencies.
Then again, even that could change as the ASX confirms Australia’s first crypto ETF is on its way.