Why does Australia have so few ETFs?

[Cirquedan]

I understand its a much smaller market than the US and its a new product but I don't know why we have so few?

I'm really looking at getting exposure to certain sectors, consumer staples, trad and alt energy, materials and utilities... but would like the safety of diversification that ETF's offer.

Am i missing something? Is there a way to get diversification across sectors like these on the ASX other than an ETF and without a ton of brokerage fee's?

Cheers,

 

[Bill M]

Hi and welcome to the forum.

To answer your question, no you are not wrong and there are only a few players in the market. It is getting better though and finally we have some new ETF's.

I use ETF's as a broad diversification tool as well and these days I lean more towards them rather than trying to pick winners. Also when markets are smashed like they were in March 2009 everything was cheap and even Warren Buffett mentioned at the time that buying an ETF might be a good idea.

The newest company to set up in Australia is Betashares, they have some interesting ETF's including a USD one. Other companies are Ishares, State Street Global Advisors and Vanguard. You can google these individually. As far as I know they are the only 4 companies that offer ETF's here. Good luck with your investments.

 

[Cirquedan]

Hi Bill,

Thanks, I've checked out those on offer and iShares Consumer staples IXI is the only one close.

I really want to find a way to mimic US products like XLB for Materials ,XLU for Utilities, PBW and PKN for Alt energy and XLE for trad energy.

I'm definitely new to this, Is there no other way to spread across a sector?

Do I have to look at mutual funds?

 

[So_Cynical]

I understand its a much smaller market than the US and its a new product but I don't know why we have so few?

I'm really looking at getting exposure to certain sectors, consumer staples, trad and alt energy, materials and utilities... but would like the safety of diversification that ETF's offer.

Am i missing something? Is there a way to get diversification across sectors like these on the ASX other than an ETF and without a ton of brokerage fee's?

There are alot of new ETF's and its a small market when compared to the US, and looking at Aussie ETF's they are mostly a punt on 4 to 6 big stocks anyway so around a $100 bucks in brokerage will give you similar direct exposure anyway.

ishares have some new ETF's http://au.ishares.com/fund/performance.do

betashares do to http://betashares.com.au/products/

 

[thembi]

The market is definitely still pretty immature but at least its starting to develop and mature. I have no doubt we will see products like the ones you're describing at some point. Right now, for the specific things you're looking for, you would still need to buy them on the US exchanges. Some of the sectors you mention in Australia would be extremely concentrated though so not sure whether an ETF would be needed. The largest two sectors are definitely the Financials and Resources which are covered by ETFs (QRE and QFN). The other major sector is Property Trusts which has two products covering it (VAP and SLF).
Let's hope the market continues to develop and grow so more options exist for us all

 

[konkon]

And why don't we have inverse etfs and inverse etcs, so we can short record high priced commodities, for example? Hasn't anyone realised that you need to have an alternative trading strategy apart from buying when prices are at record highs! How long ago was 3 years!?

What will happen again is mum and dad money will keep inflating prices and the short sellers will have a field day again, when it's time to turn on commodities! It seems a little odd that some bright spark thought it would be a good idea to introduce a lot of these new etcs, specifically, into Australia when those commodities are trading higher now than prior to the GFC. Is there a sinister plan to take excess mum and dad money, again, if there is a shift from commodities?

So how long before we see inverse contracts like these in Australia? For investment savvy people who know how to trade, we are treated like novices by those who want to control all aspects of our lives. Per capita we are some of the best investors in the world, so give us more trading options like they've got in Europe and the States.

cfds are way too complex for those that just want to trade and get back to our daily work.

 

[poverty]

There are alot of new ETF's and its a small market when compared to the US, and looking at Aussie ETF's they are mostly a punt on 4 to 6 big stocks anyway so around a $100 bucks in brokerage will give you similar direct exposure anyway.

And the 5 or 6 big stocks will have far more liquidity than the crappy ETFs.

 

[Bill M]

And the 5 or 6 big stocks will have far more liquidity than the crappy ETFs.

Most of the ETF's DO have liquidity. The ETF provider usually appoints a "Market Maker" and those market makers have a buy and sell spread available with a fews cents between the two. I have never had a problem buying or selling an ETF, even the small ones.

For the new investors the definition of a "Market Maker" is at the following link.

http://www.investorwords.com/2977/market_maker.html

 

[So_Cynical]

Most of the ETF's DO have liquidity. The ETF provider usually appoints a "Market Maker" and those market makers have a buy and sell spread available with a fews cents between the two. I have never had a problem buying or selling an ETF, even the small ones.

For the new investors the definition of a "Market Maker" is at the following link.

http://www.investorwords.com/2977/market_maker.html

I've had big problems low balling (buying) ETF's .. i find the market makers tend to be a stabilising force that can prevent the fund SP falling to reflect realistic intra day lows (i mean like SLF and Westfield (old Westfield) falling 5% intra day and SLF only falling 2%) this sort of price distortion was/is a regular occurrence and not good for low cost average investors like me.

And that's why i don't and will not hold any ETF's

 

[Bill M]

I've had big problems low balling (buying) ETF's .. i find the market makers tend to be a stabilising force that can prevent the fund SP falling to reflect realistic intra day lows (i mean like SLF and Westfield (old Westfield) falling 5% intra day and SLF only falling 2%) this sort of price distortion was/is a regular occurrence and not good for low cost average investors like me.

And that's why i don't and will not hold any ETF's

Exactly, and that's how it should work. ETF's are there to track the index, just because WDC drops 5% in a day and everything else property is holding well and the index only drops 2% is how it should play out. You are a professional investor unlike the pleb in the street. You prefer to pick your own, like low balling WDC but for some people it's all too hard and they just prefer to track the index. For me I am becoming a lazy b@stard and now just prefer to track it rather than beat it. ETF's are not for everyone and you make a good point, you can track it (I prefer that), beat it or fall way behind it, up to the individual.

 

[Cirquedan]

Cheers all for the advice. A lot to learn. Will register with CMC and have a bash at being a bit more active.

 

[RexxarInvestor]

And why don't we have inverse etfs and inverse etcs, so we can short record high priced commodities, for example? Hasn't anyone realised that you need to have an alternative trading strategy apart from buying when prices are at record highs! How long ago was 3 years!?

What will happen again is mum and dad money will keep inflating prices and the short sellers will have a field day again, when it's time to turn on commodities! It seems a little odd that some bright spark thought it would be a good idea to introduce a lot of these new etcs, specifically, into Australia when those commodities are trading higher now than prior to the GFC. Is there a sinister plan to take excess mum and dad money, again, if there is a shift from commodities?

So how long before we see inverse contracts like these in Australia? For investment savvy people who know how to trade, we are treated like novices by those who want to control all aspects of our lives. Per capita we are some of the best investors in the world, so give us more trading options like they've got in Europe and the States.

cfds are way too complex for those that just want to trade and get back to our daily work.

We don't have inverse ETFs because they are very different to your normal ETFs and very complicated and ASIC wants to have a thorough look at them to see how they work before they come to market.

And besides don't think for a second think that inverse ETFs are easy to use as implied, they are very dangerous, complicated and infact in the US FINRA sent a warning about them, read:http://www.finra.org/Newsroom/NewsReleases/2009/P119820

Morningstar in the past has provided an example of a how dangerous it can be: when the US Dow Jones Real Estate Investment Trust market tumbled 40 per cent in 200, a double-leveraged inverse ETF tracking the index - which some investors assumed should have risen 80 per cent - actually lost 50 per cent over the period.

I personally fear the day when inverse ETFs come to Australia, because I know some self-funded retireee or an SMSF investor use it in a portfolio, and assume its as easy to use as it sounds, but ends up shreds his own portfolio into pieces and blames ASIC because PDS's and investor education is uncool.