ETF market grows despite lack of inflows

The underlying asset prices of Australian exchange-traded funds (ETFs) swelled to grow the industry's market capitalisation by 3.9 per cent over September, according to Betashares' monthly ETF review.

The market grew to $5.7 billion in assets under management. ETF trading values were up 5 per cent but had come off a low base following a 21 per cent drop in trading values in August.

There were no new inflows in September - investors' risk appetite took a dive following a frenzy of equity buying in July which buoyed growth and led to a 4 per cent increase in market cap growth.

Precious metals and income were most popular among investors in July. Currency unhedged and hedged gold products saw a lot of activity, following the United States' announcement of a third round of quantitative easing (QE).

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"With QE chatter reaching fever pitch before it was officially announced, strong inflows into gold ETFs were reflective of investors looking to profit from the upswing experienced during QE1 and QE2," Betashares' head of investment strategy Drew Corbett said.

Investors also favoured income such as high-dividend and cash ETFs over fixed income.

They appeared to view the Australian dollar as overvalued, Betashares said, as the US dollar ETF gained favour despite the debasement of the US currency.

"The US dollar ETF trading activity was similar to the S&P 500 ETF, a fund which is almost four times the size in terms of assets under management," Corbett said.

He said that despite September's subdued activity, the top five ETFs all returned over 20 per cent for the year to the end of September.