According to the study, the Australian ETF market is developing despite gimmicks”.

Australia's exchange-traded fund market "is becoming increasingly entrenched and diversified", although the large number of ETFs available may mean the priority "will now be to consolidate assets into existing products", according to a new report from Cerulli Associates.

The global research group says in its latest report Cerulli Edge: Asian Monthly Product Trends that there were 304 ETFs listed in Australia at the end of September and that new products are being launched "even in difficult market conditions".

According to Cerulli, “the market’s diversity has proven useful in difficult markets because it is now sufficiently mature to offer much more than pure long-only options.”

As an example, the research group cited leveraged short funds, "which would not have existed in the early days of the sector" and which were the best-performing products in September.

In other months, certain specialized commodity ETFs performed strongly, such as a global uranium ETF in August.

According to Cerulli, the dynamics of the Australian ETF industry are “extremely promising, although there is a sense that new product launches are becoming so niche as to be gimmicky.”

The report notes that ETF providers have launched niche products, although some products have lost money and others have even been delisted.

It refers to the cryptocurrency ETFs that launched with great fanfare in May but were delisted due to low investor demand.

Local digital asset manager Cosmos Asset Management delisted its three crypto ETFs in early November, and two ETFs that invested in units of the Toronto-listed 3iQ CoinShares Bitcoin and 3iQ CoinShares Ether ETFs also halted trading last month.

The report also warns that “with so many products now available, the priority now may be consolidating assets in existing products rather than always bringing something new to market.”

Cerulli notes that the Australian ETF market was still heavily dominated by equity strategies.

The research group cited Morningstar data showing that while equity ETF assets fell "dramatically" from $67.2 billion at the end of last year to $58.5 billion at the end of September, these vehicles still managed more money than all other asset classes combined.

Total Australian ETF assets fell from almost $87 billion at the end of 2021 to $74.5 billion at the end of September.

Equity ETFs accounted for $9.7 billion of the $11.6 billion in net inflows recorded by Australian ETFs in the first three quarters of 2022.

Cerulli notes that it was “striking that alternative inflows have fallen very sharply while money market products have turned sharply negative – an interesting situation given that rising interest rates are offering higher returns on cash than has been the case for many years.

“Instead, investors appear to be finally returning to fixed income as yields rise significantly for the first time in a decade.”

Net inflows into fixed-income ETFs reached nearly $1.6 billion in the first nine months of this year, nearly 2021's full-year total of $1.7 billion.

*Ignites Asia is a news service published by FT Specialist for professionals working in the wealth management industry. It covers everything from new product launches to regulations and industry trends. Trials and subscriptions are available atignitesasia.com.