AUSTRALIA - State Street Global Advisors (SSgA) expect that exchange traded funds (ETFs) will continue to grow in popularity with Australian institutional investors as they come to grips with new legislation stemming from the Cooper Review.
"We have had a significant asset increase in Australia, particularly in line with the Cooper Reforms coming into force from the beginning of next year," said Frank Henze, managing director of SSgA, who oversees the SPDR ETF business in the Asia Pacific region. "There is a lot of movement in the marketplace."
With Cooper's emphasis on providing low-cost-for-value investment outcomes for superannuation funds, ETFs should fit well with investment strategies, Henze said. In a research paper accompanying his briefing, SSgA pointed to the fact that ETFs offer access a market or specific market segment at low cost, due to their lower administration costs. Because they track a market index, they also have relatively low portfolio turnover, further reducing costs.
Henze said ETFs are variously used by Australian institutional investors as a passive investment strategy, a way of adding strategic asset allocation tilts and accessing liquid investments.
"They bring an element of liquidity/flexibility to the portfolio," he said. "They are also transparent- the products that SSgA offer physically replicate, hold the underlying assets."
According to the report, Australian active managers "can have expense ratios that can exceed 1.5% per annum while the STW ETF only charges 0.29%. Active management costs do not always end there, however. Funds will often have front and/or back-end load fees (sales charges), higher fund expenses from more frequent position swapping and rebalancing and other potential fees".
SSgA 62% of the ETF market in Australia offers seven SPDR ETFs in the domestic market.
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