Why ETPs remain popular during coronavirus market chaos


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The COVID-19 pandemic and record levels of sharemarket volatility during the March quarter didn't stop investors pouring more money into exchange-traded products.

Rainmaker Information, which publishes Money magazine, reports that ASX data shows exchange-traded products (ETPs) recorded net flows of $3.8 billion during the first three months of 2020, meaning more money was invested in these products than sold. But it doesn't take away the fact that ETPs lost $4.6 billion in market value over the quarter (from $61.5 billion to $56.9 billion).

John Dyall, Rainmaker Information's head of investment research, says the positive quarterly flows combined with a spike in trading volumes during the month of March, demonstrate that investors were prepared to reposition their portfolios during an extremely turbulent period.

etp etf inflows

Despite Australian equities ETPs (including listed property) suffering the highest losses in March, they were the most supported with more than $1.2 billion in net flows. Dyall says investors were clearly looking to pick up assets at bargain prices by reallocating their portfolios or trading in and out of ETPs.

The BetaShares Australian Equities Strong Bear Fund was one of the few ETPs to increase its assets under management in March and had the highest trading volume at around $2 billion. On March 31 it recorded a trading volume of $160 million, larger than Telstra's trading volume for that day.

BetaShares chief executive Alex Vynokur says this reflected the final week in March on the ASX where investors had increased their exposure to bear funds despite an uptick in the market in the days prior. Investors didn't feel the bounce in the market was sustainable, Vynokur says.

Rainmaker's Dyall says while bear funds are great for hedging portfolios so that investors don't have to sell long-term holdings that may have embedded capital gains, "it is apparent investors were using their magnified effect to trade volatility for short term gain."

"When prices on underlying indexes were changing at an average of 4% daily in March, the average change in price of these products would have been around 8%," he says.

In terms of international equities ETPs during March, more than $530 million was shifted out of unhedged products and this was almost offset by $476 million moving into hedged products as investors sought protection against currency shifts, Dyall says.

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Darren Snyder was the managing editor of Money magazine from March 2019 to November 2020. Prior to that he was editor of Financial Standard.

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