Exchange-traded funds (ETFs) are most known to investors for their ability to provide diversification, but online investment adviser Stockspot believes they are gaining traction because of cost benefits.
Fund managers typically charge 1 per cent to actively manage a fund, and investors are being increasingly attracted to ETFs, which undercut this price tag, according to Stockspot.
Chris Brycki, chief executive officer and founder of Stockspot, tips investors will continue to buy ETFs over investing in actively managed funds.
“Whether you’re investing in Australian shares, global shares or bonds, more than 80 per cent of active fund managers have consistently failed to beat the index. It’s no wonder investors are abandoning risky stock picking for the safer option of tracking the market index,” Mr Brycki added.
The savings so far
According to Stockspot’s research, ETFs save Australian investors a collective $300 million per year in fees, when compared to the costs associated with using an active fund manager.
This savings rate is predicted to double by 2022, as more investors start using the product.
“Considering ETFs still only make up 2 per cent of the share market in Australia, $300 million saving is huge. This figure will increase exponentially,” said Mr Brycki.
The total funds under management for ETFs grew by 26 per cent last year and now represents nearly $46 billion, according to Stockspot.