The exchange-traded products (ETPs) landscape in Australia is taking advantage of an ideal product mix provided by global heavyweights such as Blackrock, Vanguard, State Street, and some smaller niche local players like BetaShares, or ETF Securities, according to Andrew Campion (pictured), senior manager investment products at the Australian Securities Exchange (ASX).

"Investors have access to broad-based market benchmarks at low cost as well as more specialised products that resonate well with the local market," says Campion. "A great example of this is the rise of cash ETFs in Australia, such as BetaShares AAA product."

ASX reported a total of 38 ETPs listed in 2016, down from 47 in the previous financial year, while the market value of ETPs increased by 23%, from A$22.5bn (US$19.9bn) to A$29.5bn. "We have excellent product coverage now, both in asset class and geographical terms, after a few years of a large number of new ETF listings," Campion says. "The focus of the local industry is on growing AUM rather than a proliferation of new products - a proliferation might confuse what is still predominantly a retail dominated market."

According to Campion, the ETPs in Australia are still largely retail products, interest from institutional investors is beginning to increase. "Self-managed superannuation funds (SMSFs) continue to be a major driver of new flows into ETPs," says Campion.

As with most markets, Campion assured that the most popular individual ETF in Australia is the first to track the local benchmark equity index. "In the case of Australia, that is STW, the State Street SPDR that mirrors the S&P/ASX 200 index. It has $3.3bn of AUM, which represents about 10% of the overall ETP market," he said. "VAS, which is Vanguard's equivalent, albeit the slightly broader S&P/ASX 300 index, has $2.4bn. The top 3 is rounded out by IVV which is the iShares S&P500 fund."

ASX has several initiatives underway to promote the use of ETFs by both retail and institutional investors. The exchange recently launched its Exchange Traded Options (ETOs) on the SPDR S&P/ASX 200 Fund (STW), the largest index fund on ASX, "which will be followed up by several other contracts during the next year", according to Campion.

"We have widened the scope of which assets are eligible collateral at our clearing house to now include 13 ETFs, which will hopefully bolster the institutional take-up of these products," says Campion. "ASX also runs a broad range of educational activities aimed at retail investors, such as our Investor Day roadshows, webinars, and website materials."

According to Campion, beyond the increased use of ETFs tracking broad-based equity benchmarks, there are a few key visible trends including the a "very pronounced" search for yield and income which is manifesting in the popularity of fixed income trackers such as exchange-traded bonds (XTBs) and cash ETFs. "[Another] major trend is around active ETFs," says Campion. "The regulatory regime in Australia allows active fund managers to list ETFs that mirror their unlisted funds, and that also have less portfolio disclosure than is typical in most markets to protect the intellectual property of the fund manager."

The Australian ETF market is playing a key complementary role to the domestic securities market which "has become a very vanilla" since the global financial crisis, according to Campion.

"There is very little demand for leverage or product complexity," says Campion. "Leverage and inverse ETFs are niche products and this will continue to be the case for the time being."

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