The Australian share market is experiencing a phenomenal rise in exchange-traded funds (ETFs), driven by strong investor demand for low-cost access to global markets, particularly in the growing field of artificial intelligence. This record wave is set to accelerate. Australia’s ETF market attracted record inflows of $62 billion last financial year, with total assets under management (AUM) currently at $362 billion, set to exceed $400 billion by the end of the year.
A key catalyst for this growth is the federal budget’s proposed capital gains tax changes, which make ETFs more attractive because they internally net gains and losses. VanEck, an investment management firm best known for its exchange-traded funds (ETFs), is launching three new ETFs on the ASX in early August, including the exchange’s first quantum computing product, a global semiconductors fund, and a rare earth and strategic metals ETF. Betashares, an Australian fund manager that offers a wide range of ETFs, is expanding its offerings with new multi-asset and diversified credit income funds, aimed at cost effectiveness.
Although many active funds are listed on the ASX, they received just 9 per cent of total industry inflows in the last financial year. Retail investors prefer passive ETFs due to their low cost and consistent performance. However, thematic ETFs, particularly those focused on AI, are gaining significant retail interest. The Global XK Semiconductor Fund, the only such ETF on the ASX, returned an impressive 166.8 per cent in the last financial year. Despite these strong returns, investors are cautioned against succumbing to market hype, exemplified by losses in rocket-themed ETFs.
Arian Neiron, head of Asia Pacific at VanEck, predicts that industry AUM could reach $500 billion between 2027 and 2028, noting that market reforms could shift money into more transparent, liquid ETFs. Betashares chief executive Alex Vanucker added that the fund manager’s increased participation in the ETF market benefits investors through greater choice, but advised careful product selection.
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