Company Interview / What's driving the strongest start year ever for Aussie ETFs...

Marc Jocum from Global X ETFs discusses the recent decline in Nvidia, attributing it to ongoing issues with the DOJ and market cooling. Despite this, Marc maintains that Nvidia's long-term growth prospects remain positive, particularly in innovative technology. He also notes investor interest in semiconductor and renewable energy ETFs.

Marc shares insights on Australia's ETF market, highlighting its exponential growth. Despite a late start, the market has reached over $200 billion, with significant inflows in global equities and regions like India, China, and Japan. He sees continued potential for growth, especially compared to the US market.

Lastly, Marc highlights the popularity of crypto ETFs in Australia and a resurgence in thematic ETFs like cyber security and semiconductors. However, he also points out outflows in sectors like esports and clean energy. He anticipates ongoing innovation in the ETF market, especially in fixed income products.

Full unedited transcript below:

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But we'll talk ETFs shall we. And we'll get the latest data coming from global ETF. But I do have Mark Joakim here from global X. And I just thought Marc I welcome first of all that I'd like to know what the conversation is around the watercooler globally about this massive fall that we've saw in Nvidia, where we're seeing these sort of ripples around the Asian region today. Again, definitely. And you saw overnight Nvidia down 10%. A lot of people were quite worried because of the DOJ coming in. Um, but importantly with this potential um issue, this happened last year. So it's just an extended extending of that. Overall, we still think that the long term thesis of Nvidia remains intact. Um, if you have a look at when the actual announcement from the DOJ came in, it was actually, um, the share price was already down quite a considerable amount. So this could just be a general cooling. We've seen Nvidia being such a run up stock over the last year or so, and in terms of its contribution to the total equity market, it still

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maintains it's still accounts for a huge part. So overall, I think the narrative still remains intact. You're talking about a very, um, innovative business. There's a little bit of chatter around what their delay in their Blackwell chips really means for the company. But overall, from an earnings perspective, we're still we're still seeing strong growth from a company like this. And overall, whilst it has been a little bit of selling pressure, the long term bull thesis still remains intact. Well, I'm glad I asked just to cover that off because a lot of investors obviously wondering about that one. Um, I saw a report come out from global X, I think it was earlier in the week with some latest stats on the Aussie ETF market. I always think it's interesting because the Australian market has been so far behind global markets. So there's always been this, you know, big prospect of still a lot of growth to come. What's the actual data telling us. Yeah, definitely. And I think in Australia we we were late to the game from an ETF adoption. I mean the first ETF came out in Canada in 1991. We had to wait almost ten years later for the first ETF to come out in

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Australia. But overall, the data is quite tremendous when you think about the growth within the ETF landscape. So what you've seen is the markets cross over $200 billion. But what I find staggering is that it took almost a decade to reach the first 100 billion. And then it took three years to reach the next, um, next uh, next hundred billion after that. So you're almost experiencing this exponential growth. It's almost like a hockey stick. And we're very much in that early innings at the moment. Yeah. Okay. So so you're saying that the growth can continue. The rate of growth can continue. I believe so. And the reason that I think I still think we're quite early within the ETF adoption. Um, overall ETFs only account for around about 5% of the total funds market, where in the US it's closer to 25%. So I think that from a penetration perspective paints a lot of tailwinds. But not just that. Whilst growth may decelerate because you know you're not going to be able to keep this consistent growth of 30 to 40% per year, you're constantly seeing more money consistently going

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into ETFs. You're seeing active fund managers converting their funds into ETFs as well. So there's a lot of different avenues that the ETF market continues to grow. But cash flows is one of the biggest thing. And this year we could be on a record pace at the moment for the most amount of money that's come into ETFs in any given year. So we'll have to monitor to see what happens. Okay. Um, that's a lot. How many ETFs do we have listed here locally now. Almost 400 okay. There's a lot. Yeah okay. Now so what of the 400. Where's a lot of the funds flow. The money being allocated this year. So last year was all about fixed income. This year complete opposite. It's been a rotation into risk on assets. So a lot of money going into global equities particularly low cost diversified global equities. And I feel that a lot of people when we were talking about Nvidia before are using ETFs to get exposure to global themes to global equities, whilst they have their Australian share of their portion pretty well covered. And overall, in terms of areas that we're seeing a lot of interest in, there are some regional pockets which I

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found quite fascinating to have a look. A lot of Aussies are trying to get exposure to growing markets like India as an example. So we've seen over $150 million come into Indian ETFs. Um, there's a lot of talk about India overtaking China. But funnily enough, we've actually seen rotation into China and Japan as well. So there could be again, we're still very bullish on a lot of money going towards developed markets like the US, but there could be some regional pockets that Australians are looking to allocate their money to. Okay. That's interesting. And as far as thematics, I mean we have talked crypto I suppose a lot. Um, is that firing or it's taking a while. Yeah. I mean crypto ETFs have been the best performing asset class over the last 12 months. There's a lot of tailwinds within crypto assets overall. Um, what's great about Australia is we were early innovators with having to, um, spot Bitcoin and Ethereum ETFs. But more broadly within the thematic space, whilst there has been a little bit of a lag, um, 2022 and 2023 were quite tough for thematic

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ETFs, but we have seen a little bit of a resurgence in thematic ETFs, particularly around themes like broad technology, semiconductors has been really popular. Renewable energy, particularly around uranium and copper, has been very, very interesting. And cyber security as well. Um, will the themes continue? We'll we'll have to wait to find out. But overall, ETFs provide such a great building block for clients who want to access a certain thematic or a certain area that they're passionate about in a low cost, diversified way. Well, yeah. And sometimes if you don't know how to pick the winners and some of those emerging sort of areas of the market, ETFs seem at least like an easier way to do it. What is not resonating with investors in terms of thematics? It's interesting what some of the areas that were quite popular over the last couple of years haven't been so much this year. Um, funnily enough, we've seen a lot of outflows from certain areas where there would be esports and gaming ETFs. We've seen outflows from agriculture and food ETFs, and one thing that

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I find quite funny is we've actually seen outflows from broader clean energy ETFs. Now there has been a little bit of a underperformance from some of the clean energy ETFs, particularly in a rising rate environment, given that they have a lot of debt levels, and that if you think about it, investors were pricing in their cash flows to 2050 because that's where we want to get to our net zero by 2050. But there are certain areas within renewable energy that people are targeting. And I mentioned areas like copper very, very topical at the moment. Uranium also topical more politically, but also a huge part of the energy transition, particularly around data centres and AI. And overall, I think investors are just becoming a bit more tactile with how they allocating their going away from the broader ESG theme and the broader clean energy theme, and being very specific in what they want to target. And I'm very interested to monitor whether that continues throughout the year. Yeah. Interesting. Okay. And then when it comes to, I suppose, broader factors, if you can call it that, you know, value versus growth, um,

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small versus big. What are we seeing. Yeah. So everyone's been talking about this great rotation. You know rotation out of growth out of the US into more value orientated ETFs into other areas. Small cap and we have seen a little bit of it so far, but not drastically. If you look at flows into like equal weight S&P 500 ETFs, you haven't seen that material flow just yet. A lot of money is still going into the large cap side of town. But what I find quite interesting is we did see a resurgence over the last couple of months in multifactor ETFs. So these are ETFs that combine multiple areas where there would be growth, whether it be quality, whether it be value. So I'm really interested to see how that unfolds. But there are some investors who are wishing to express their view, going away from some of the US mega-cap growth stocks into some of these areas. And for example, value was out of favor last year. It's been 10 to 15 years of underperformance from value stocks. Will that continue? We're not 100% sure, but you are seeing a bit more flows into value ETFs. So we'll have to see whether that can continue for the rest of the year. Okay. And so I

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guess along the same lines, are we seeing much product innovation or as much product innovation this year. Have all the clever ticker codes been taken. No. There's still plenty of ticker codes up for grabs. I mean, asking the office, we always vote on what's the next ticket that we can come up with. Um, no. I still think that there's more innovation to come, particularly in areas like fixed income. So a couple of months ago, we launched a fixed income ETF that targets banking credit, ticker code was Bank, bank. And I still think that there's a lot of innovation happening in the fixed income product landscape. Out of the 400 products I mentioned, there's only 70 that are targeting fixed income overall. And I still think that considering the number of flows that we saw last year in fixed income ETFs, there's still a wave of innovation coming in that space. Not just that, we're probably going to see more active funds coming to the market as well. Active fund managers are using the ETF wrapper as a distribution channel to get more flows, but overall they still an outflows, even though they account for about half of the revenue and a quarter of the products. And finally, we're probably going to see a broadening

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out of more thematics coming to the market. Um, the US is kind of a good, um, leading indicator of where things are going, but Australia is still quite infant within that adoption phase. So I still see the growth in thematic ETFs being one that will continue to grow and particularly use within client portfolios.