The use of ETFs (exchange traded funds), which track asset classes such as local or global shares, has exploded in use in Australia, doubling in the last three years.
Stockspot, the digital investment adviser startup, has just released its annual rankings of 150 ASX-listed ETFs, rating each fund out of five, based on fees, performance, size and activity.
The analysis shows 36 ETFs earned a high rating of 4 or 5, while 37 received a low 0 or 1.
Vanguard, one of the biggest, had a standout year increasing funds under management (FUM) by 42% as investors moved to low cost index investing strategies.
Overall, the Australian ETF market grew 28% over the year to $27.2 billion in funds under management.
The largest inflows of cash came to global shares funds ($2 billion) followed by Australian shares ($1.5 billion).
Here are the five top, and bottom five, performing ETFs when measured by returns:
Stockspot says the resource sector rallied 40% after five years of poor performance.
“The resources sector in Australia enjoyed a resurgence over the last year with three of the top five performers being resource sector focused,” says Stockspot.
“The top performing funds this year highlights that markets tend to revert to their averages.
“GEAR, OZR and QRE, which were top funds this year, were amongst the five worst performers in last year’s report, highlighting how being contrarian can be helpful when investing in broad asset classes.”
And here are the five top, and bottom five, performing ETFs when measured by funds under management:
Asian shares rebounded 24%, outpacing returns in on-trend markets and sectors that had more modest gains such as US shares (+17%) and Australian property (+7%).
Stockspot CEO Chris Brycki says ETFs will continue to be the success story of the investment industry as investors look to add better diversification at a low cost.
“Consumers still watch movies like they did 30 years ago, only now they do it at a fraction of the cost and in a more flexible format using services like Netflix,” says Brycki.
“In a similar way, the huge flow of money into ETFs is simply a change in the way people invest.
“Despite only 36 ETFs earning our highest rating of five spots, the reality is that many more of them are likely to outperform the average actively managed funds across the cycle due to their lower cost.”