The landscape of Exchange-Traded Fund (ETF) investors in Australia has undergone a significant shift over the past two years, marked by a notable decline in young investor participation and a rising interest from older generations.
A recent analysis has revealed a sharp 42% decline in ETF investments among the 18 to 34 age group, with 300,000 investors in this bracket selling out. This trend signifies a shift away from the pandemic-era surge in young ETF investors. Factors contributing to this exodus include modest returns averaging 2% in 2023, attractive risk-free returns from savings accounts, and increased living costs leading to tighter budgets.
As Millennials step back, Generation X, along with the youngest Baby Boomers (aged 44 to 65), have emerged as the dominant group in the ETF market, accounting for 33% of investors. This demographic, along with those aged 65 and over, now forms a significant portion of the ETF investor base. The average household income among ETF investors has also increased from $140,000 in 2021 to $150,000 in 2023.
The change in investment habits is partly attributed to the economic context. Young investors seem disenchanted with lower share market growth rates and are exploring higher returns through traditional bank savings. Furthermore, the prioritization of essential spending due to rising living costs is impacting investment decisions.
There has been a decline in female participation in ETF investments, dropping from 27% in 2022 to 22% in 2023. This change is attributed to a faster growth rate of male investors and some women opting out of the market.
Looking ahead, the trajectory of young investors returning to the market is contingent on central bank rate decisions. Meanwhile, the average tenure of ETF investors remains relatively short, with many exiting within one to five years.
Experts emphasize the importance of a long-term approach to ETF investments. Betashares Nasdaq 100 ETF, for instance, has shown high returns over a five-year period. However, the average 2% return reported by many investors may reflect a preference for thematic or active ETFs, which don’t always yield the best outcomes.
| Funds | Funds under management ($m) |
5-year total return (ann,%) |
5-year total return (%) | Growth of $1000 ($) |
|---|---|---|---|---|
| Betashares Nasdaq 100 | 3335 | 19 | 135 | 2354 |
| Betashares Global Sustainability Leaders | 2485 | 15 | 105 | 2053 |
| Betashares Global Cybersecurity | 730 | 15 | 103 | 2029 |
| Global X Battery Tech & Lithium | 520 | 15 | 101 | 2007 |
| VanEck MSCI International Quality | 3910 | 14 | 95 | 1947 |
| VanEck Morningstar Wide Moat | 672 | 14 | 91 | 1913 |
ASX, Stockspot
Despite the current downturn in young investor participation, another 310,000 investors are projected to enter the ETF market in 2023, with young investors forming the smallest group. Industry leaders like Betashares CEO Alex Vynokur anticipate a doubling in the number of ETF investors in the next three years. Vynokur highlights the mainstream appeal of ETFs for long-term wealth creation and the need for ongoing investor education across all age groups.
In summary, the Australian ETF market is experiencing a generational shift with an increased focus on long-term investment strategies. While the younger demographic has seen a decline in participation, older generations are steadily filling the gap, reshaping the investment landscape in the process.
