Local investors added $6.7 billion to ASX-listed exchange-traded funds (ETFs) in July, up from $2.5 billion in June, Vanguard data highlighted.

However, of the roughly $17.55 billion in total ETF inflows seen in the first seven months of 2024, nearly $15 billion of that was to index ETFs, which attracted about 86 percent of total investor dollars .

“The remainder of ETF investor inflows through the end of July, about $2.54 billion, largely reflected the recent conversion of an unlisted actively managed fund to an ETF product,” Vanguard said.

"This transaction alone added $2.49 billion."

This comes despite a sharp decline in active ETFs on the ASX in the first half of the year, which accounted for 68 per cent of all new funds listed on the exchange.

Adam DeSanctis, head of ETF capital markets at Vanguard Asia-Pacific, pointed out that the trend of index-tracking funds taking the lion's share of flows is not new.

"In 2023 for example, index funds captured $16.17 billion in investor inflows versus $1.89 billion inflows into active funds,” DeSanctis said.

Looking at each strategy by asset size, Vanguard's research showed that $168.2 billion was invested in 243 index-tracking funds through the end of July, representing 81 percent of total industry assets under management (AUM).

In contrast, $40.55 billion – or 19 percent – ​​was invested in 114 active stock products.

“Growth in active assets under management has been quite volatile, largely as a result of several large companies choosing to convert their unlisted funds into ETFs. They are the same funds as before, but now they trade through an active ETF structure,” DeSanctis said.

"It's clear that passive index funds are where most of the ETF industry's cash flow is going, as more Australians use them as mainstays of their portfolios to track broad index returns from various markets he concluded.

Against the backdrop of Australia's growing market, which now exceeds $200 billion in assets under management as of June, Global X product and investment strategist Mark Jockum alternatively posits that the trend highlights the "high cost vs. low cost" dilemma when choosing an ETF strategy , where higher costs historically consistent with managed funds.

Specifically, Jocum pointed out that over three-quarters of fund flows went to products with management fees below 0.25 percent per year, with a whopping 97 percent flowing into products that charge 0.5 percent or less.

“This is what Australians love. Australians love the deal, they love the idea of ​​controlling fees,” he recently told InvestorDaily.

"I think Australian investors still have this perception, rightly so in our view, that a lot of the simple arithmetic of the share market and some of the statistics behind it is that active managers are still struggling to outperform their benchmark and outperform -a broad ETF, such as a cheap vanilla ETF.

“That's where you see a lot more money going into just your very broad-based, low-cost products. Because, naturally, that's where a lot of people think, 'If I can get exposure to a certain asset class, why not control one of the areas that investors can control,' which is the fees they pay."