Alex Prineas, Associate Director, Manager Research, Morningstar Australasia 1
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The Backdrop: Australia s ETF Market is Growing Fast, in FUM and Product Launches Total Assets and Number of ETPs in Australia, Dec 2001 to Mar 2017 Number of ETPs 150 125 100 75 50 25 0 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 Mar-17 30 25 20 15 10 5 0 FUM A$billions Source: Morningstar Direct, Morningstar ETFInvestor 3
Traditional ETFs Growing Fast, But A New Breed of ETPs Are Gaining Momentum Australian ETP Market Growth, March 2010 to March 2017. Traditional ETFs, Active ETPs, Strategic Beta ETPs, Other Non-Traditional ETPs. The non-traditional band here includes commodity ETPs, geared, inverse and derivative strategies, currency ETPs, ethical ETFs, and systematic strategies that do not track an index. 4 $30.0b $25.0b Active ETPs 1.08bil Strategic Beta 2.59bil $20.0b Other non-traditional ETPs 2.49 bil $15.0b $10.0b $5.0b Traditional ETP market at 31 Mar 2017: AUD 19.59 billion $0.0b 2010 2011 2012 2013 2014 2015 2016 2017 Source: Morningstar Direct, Morningstar ETFInvestor
Strategic Beta is An Example of the Evolution of Active Management The way managed funds used to work: 1. The manager picks some stocks 2. The manager buys the stocks But that has fallen out of fashion because it is active management. The new way managed funds work is: 1. The manager picks some stocks 2. Write the stocks down in a list. 3. Calls the list an index. 4. The manager buys the stocks 5
Strategic Beta is An Example of the Evolution of Active Management 6
ETP Strategic Beta Growth Not Just a US Story, Not Just an Australian Story Asia-Pacific Strategic Beta ETP Asset Growth USD Billions 12 10 8 6 4 2 - Jan-07 Jan-08 Jan-09 Jan-10 Jan-11 Jan-12 Jan-13 Jan-14 Jan-15 Jan-16 Australia China Hong Kong India Japan Malaysia New Zealand Singapore South Korea Source: Morningstar s Global Guide to Strategic Beta, 2016 7
Dividends Rule in Australia But For How Long? Asia-Pacific Strategic Beta ETPs Ranking by Attribute Source: Morningstar s Global Guide to Strategic Beta, 2016 8
Strategic Beta Product Launches Are Accelerating, and Diversifying Australian ETP Assets, Strategic Beta ETP Assets, and Strategic Beta Product Launches Source: Morningstar s Global Guide to Strategic Beta, 2016 9
Bringing Order To the Disorder Morningstar s Strategic Beta Taxonomy Return-Oriented Dividend Screened/Weighted Value Growth Fundamentals Multi-Factor Size Momentum Buyback/Shareholder Yield Earnings Weighted Quality Expected Returns Revenue Weighted Strategic Beta Risk-Oriented Minimum Volatility/Variance Low/High Beta Risk-Weighted Other Non-Traditional Commodity Equal-Weighted Non-Traditional Fixed Income Multi-Asset 10
Morningstar s Global Guide to Strategic Beta ETPs First released in 2014, next edition due in Q3, with data effective as at 30 June 2017 11