Investors are treating the ASX like a pokie machine and trying to surf the share market volatility triggered by the coronavirus, Vanguard Australia has warned.

ETF investors are usually quite calm and predictable. In most months, they just buy boring and relatively safe ETFs that track famous benchmarks. The iShares S&P 500 ETF (IVV) and the Vanguard Australian Shares Index ETF (VAS) are popular examples.

This means that at the end of every month, when the ASX publishes its list of Australia’s most popular ETFs, the boring ones are almost always the clear favourites with investors.

Most popular ETFs in July

Ticker

Fund Name

July Inflows ($mln)

AAA

Betashares Australian High Interest Cash ETF

166.4

GOLD

ETFS Physical Gold

136.1

ETHI

BetaShares Global Sustainability Leaders ETF

94.4

NDQ

BetaShares NASDAQ 100 ETF

73.1

BBOZ

BetaShares Australian Strong Bear (Hedge Fund)

66.1

In July, however, ETF investors spurned the plain vanilla ETFs. Those that invest in gold, cash and technology were the favourites. But more curiously, ETFs that use derivatives to magnify the returns of an index were also more popular than plain vanilla funds. 

According to Robin Bowerman, head of corporate affairs at Vanguard, investors trying to beat the market and exploit volatility largely explains July’s strange ETF picks. He says:

“We saw a significant increase in trading across the Australian ETF market in reaction to the onset of the [coronavirus]… This may be an indication of investors attempting to profit from the volatility, by buying and selling around short-term price movements.

“In times like these, investors should maintain their focus on long-term goals as opportunistic buying and trying to time the market is extremely difficult, and often results in a loss.”

He adds that part of the reason that Vanguard saw less money than usual enter its ETFs owed to its product lineup, which focusses on plain vanilla index funds. In July, for the first time in 10 years, none of Vanguard's ETFs were in the top 15 most popular with investors. 

While the month coincides with Melbourne - where Vanguard is headquartered - going into lockdown, Mr Bowerman suggests that Vanguard's operations have been relateively unaffected by the lockdown. 

A bigger part of the reason that Vanguard’s ETFs have seen less interest, he believes, is that Vanguard's core constituency is waiting to see out the volatility before coming back in the market.