Fixed income ETFs attracted the most cash flow of any asset class in the first half of 2023, according to data recently released by the ASX and Vanguard.
Australian bond ETFs received A$1.74 billion in H1 (Q1: A$499 million, Q2: A$1.24 billion), up 54 per cent since H1 2022.
International bond ETFs received A$763 million in H1 (Q1: A$448 million, Q2: A$315), up more than twofold (215 per cent) since H1 2022.
Collectively, net flows into Australian and global fixed income ETF products totalled A$2.5 billion over the first half of the year, outpacing net flows into Australian and international equity ETF products which recorded approximately $1billion over the same period.
“Although rising interest rates have created short-term pain for Australian investors, they have helped to improve long-term return expectations for bonds,” said Duncan Burns, Vanguard’s Head of Investments, Asia Pacific.
“While bond prices typically reprice lower when interest rates rise, investors with a sufficient long-term investment horizon will ultimately be better off.
“Investors are also flocking to bonds in their search for diversification and income as yields continue to stabilise (a signal that investors are becoming more optimistic), presenting an attractive alternative to holding cash which has generally underperformed bonds post rate hike cycles.
“Interestingly, despite the strong first half rally in global equity markets, demand for domestic fixed income – particularly bonds with high investment grade credit ratings – were the clear winner”.
The Vanguard Australian Shares High Yield ETF (VHY) was Vanguard’s most popular product in H1, attracting A$302 million in flows.
With $45 billion in assets under management for Australian investors, Vanguard remains the largest ETF issuer on the market.
ETF uptake continues to grow
The Australian ETF market continued to grow in H1, recording A$146 billion in AUM as at the end of June 2023, up 20 per cent year on year.
According to ASX’s 2023 Investor Study, ETFs are “one of the most affordable ways to enter the investment market and diversify holdings”, with 20 per cent of all Australian investors owning an ETF (up from 15 per cent in 2020).
“ETFs have so many in-built benefits that can make investing simpler and more cost effective for all types of investors,” said Mr Burns.
“For example, less than half of Australian investors believe they hold a diversified portfolio, with many not knowing what investments to select nor how to achieve adequate diversification. This is where ETFs can step in and play a critical role.
“The inherent diversification benefits of ETFs – where one trade can provide investors with exposure to not only hundreds of securities, but also to different markets and asset classes – reduces the need for investors to pick and choose winning stocks, and the costs that goes with buying individual securities.
“Education remains a focus for the ETF industry to help boost investor confidence but it’s encouraging to see ETFs growing in popularity amongst retail investors in particular”.
New Head of ETF Capital Markets
Vanguard has appointed Adam DeSanctis as Head of ETF Capital Markets for the Asia Pacific region.
Adam joined Vanguard in 2015 and was most recently a specialist in the U.S. ETF Capital Markets team. Adam holds an MBA from Columbia Business School and a B.A. in Economics from Wesleyan University. He is a CFA Charterholder and a member of the CFA Society of Philadelphia.
Reflecting Vanguard’s rotational culture for developing leadership expertise, Minh Tieu, previous Head of ETF Capital Markets, has moved to Vanguard’s headquarters in Malvern, PA to assume the role of Head of U.S. Equity Operational Risk.
“We are delighted to welcome Adam to the Australian investment management team and the wealth of experience he brings, and wish Minh every success as he embarks on his new role in our US business”, said Mr Burns.
Australian ETF market net cash flow by asset class (Q2 2023 vs Q1 2022 vs Q2 2022)
Asset class |
Q2 2023 Cash Flow (A$m) |
Q1 2023 Cash Flow (A$m) |
Q2 2022 Cash Flow (A$m) |
International equity |
-463 |
-113 |
468 |
Australian equity |
902 |
667 |
1,712 |
Australian fixed income |
1,238 |
499 |
815 |
Commodity |
-9 |
-91 |
129 |
International fixed income |
315 |
448 |
-36 |
Cash |
259 |
430 |
-313 |
Multi asset |
14 |
15 |
197 |
Infrastructure |
35 |
0.13 |
36 |
Australian property |
23 |
-42 |
51 |
International property |
35 |
52 |
75 |
Currency |
0.17 |
-24 |
0.74 |
Total |
2,349 |
1841 |
3,133 |
Top 5 Vanguard Australia ETFs by cash flow (Q2 2023)
Product |
ASX Code |
Cash Flow (A$m) |
Vanguard Australian Shares High Yield ETF |
VHY |
120 |
Vanguard Australian Shares Index ETF |
VAS |
112 |
Vanguard Australian Fixed Interest Index ETF |
VAF |
69 |
Vanguard Global Aggregate Bond Index (Hedged) ETF |
VBND |
66 |
Vanguard Australian Government Bond Index ETF |
VGB |
65 |