Best ETF Manager award: Best of the Best 2020

GOLD WINNER
STATE STREET GLOBAL ADVISORS

Yield-hungry investors are pouring their money into listed funds that aim to provide a reliable income at a low cost

The defining theme for investors through 2019 was yield - or the lack of it - in all the traditional places such as cash and term deposits.

This partly explains the investor rush into exchange traded funds, says Meaghan Victor, the head of SPDR ETFs Australia.

ETPs recorded their highest quarterly cash flow of $4.3 billion in the September quarter, boosting total Australian ETPs to $56 billion - a 32% growth rate year on year.

There are a number of reasons for the accelerated take-up of ETFs, particularly through financial planners, stockbrokers and institutions, says Victor.

"Investors are looking more broadly as they can't rely on traditional term deposits any more," she says.

Australian listed ETFs typically provide liquid, transparent, low-cost, diversified, straightforward, physically based investments in one easy trade.

But the ones that are being most hotly pursued offer safe-haven investments such as fixed income or reliable income streams from high-yielding Australian and global shares using "smart beta" strategies.

Victor says that globally more money has been going into fixed-interest ETFs rather than share ETFs. This partly reflects investor reservations about the volatility of the equity market as it gyrates over the trade war between the US and China as well as Brexit.

Over the year to the end of September, 21% of money, or $1.45 trillion, went into global fixed-interest ETFs compared with 17% going into equities.

State Street Global Advisors (SSGA) is a pioneer in the ETF market, having launched the first ETF in Australia 18 years ago. It now has 16 ETFs listed on the ASX, some of which are specially designed smart beta ETFs that harvest dividends.

Smart beta is a growing trend, says Victor, and refers to a set of investment strategies using rules-based indices rather than market capitalisation indices.

For example, SPDR MSCI Australia Select High Dividend Yield picks companies with a five-year track record of dividend consistency. It focuses on sustainability of dividend payouts that pass quality and performance filters.

Another is SPDR S&P Global Dividend, which tracks the S&P Global Dividend Aristocrats Index. It invests in high-yield companies included in the S&P Global BMI that have shown increasing or stable dividends for at least 10 consecutive years.

Victor says another trend is demand for ETFs that invest with environmental, social and governance screening to fit with investors' own ethics.

She predicts ETF growth will continue and the products will evolve.

"We believe that the most powerful innovations are those driven by investors' needs, and that's why this remains at the heart of our ETF solutions design." More education about the many advantages of ETFs is needed to bring investors on the journey.

Victor says SSGA regularly reviews its product portfolio to make sure its ETFs continue to meet investors' needs.

They've come a long way

- State Street Global Advisors launched the first ETFs in Australia in 2001. They included SPDR S&P/ASX 200 (ASX: STW), which now has almost
$4 billion in assets.

- SSGA has 16 ETFs worth $6.5 billion listed on the ASX.

- Globally SSGA has 254 ETFs valued at $US715 billion ($1036 billion), including 93 in Europe, 140 in the US, two in Hong Kong and two in Singapore.

- SSGA is the investment management arm of State Street Corporation, which has assets of $US2950 billion.

Get stories like this in our newsletters.