InvestmentMarkets and Global X highlight five shifts reshaping Australian portfolios as term deposits fall and global growth accelerates
As investors move into 2026 amid softer yields, shifting global growth patterns and rising demand for diversification, InvestmentMarkets says exchange-traded funds (ETFs) will play an increasingly central role in how Australians construct and protect their portfolios. CEO Darren Connolly said investors are increasingly using ETFs not just for long-term indexing but as tactical tools to manage income needs, access global opportunities, reduce volatility and improve after-tax returns.
Connolly said the current environment of falling term deposit rates and sub-4% yields across dividends, bonds and property has created renewed pressure on investors seeking income without sacrificing liquidity. “ETFs are no longer just a set-and-forget vehicle,” he said. “Investors are using them in more sophisticated ways. They’re looking for income uplift, access to global growth themes, and better after-tax outcomes. What we’re seeing is a shift toward more purposeful ETF use - especially among self-directed investors and advisers who want clean, transparent tools that don’t erode returns through high fees.”
Global X Senior Product and Investment Strategist Marc Jocum said one of the most pressing challenges for investors is the narrowing income landscape, with multiple traditional sources now yielding below inflation. He noted that investors who have historically relied on term deposits are now moving toward higher-yielding ETFs that provide exposure to areas such as bank credit and Australian high-dividend equities.
“Term deposits just aren’t cutting it,” Jocum said. “Bank credit is offering meaningfully higher yields than dividends, with ETFs delivering monthly distributions and liquidity without the penalty of locking money away.”
Jocum said investors are also recognising the limits of Australia’s domestic market, which represents less than two per cent of global equities and is dominated by mature sectors like financials and materials. “Technology, AI infrastructure and other high-growth industries simply aren’t available at scale in Australia,” he said. “Global ETFs give investors exposure to the sectors and regions generating real earnings growth. If people want to participate in structural themes like AI or semiconductor demand, they need to look outside the ASX.”
Volatility is another area where Jocum sees investors turning to ETFs not as a defensive measure but as a way to generate income. Covered call strategies, which combine equity exposure with option premiums, are gaining popularity among those seeking to monetise volatility spikes and reduce downside risk. “Covered call ETFs are helping investors monetise volatility spikes while diversifying income through dividends, franking credits and option premiums,” he said. “In a sideways market, these strategies can outperform traditional equity exposures.”
Fee awareness is also driving rapid ETF adoption according to Connolly, with record flows expected again this year as investors move away from high-cost unlisted managed funds. Jocum adds that the savings available are substantial. “Fees are like termites - they nibble at your returns every day,” he said. “Only six per cent of the Australian funds market is in ETFs, compared to around twenty-five per cent in the US, so we are nowhere near saturation. Most of the price discovery is still done by active managers, and ETFs make up only a small portion of daily trading volumes. Claims of an ETF ‘bubble’ do not hold up to the evidence.”
Tax efficiency is emerging as a further differentiator, with ETFs structurally less likely to distribute capital gains than traditional managed funds due to their creation-redemption process. Connolly said this is becoming a deciding factor for SMSFs and advisers. “Investors underestimate how much performance can be lost to tax,” he said. “ETFs’ structural benefits help reduce that drag and deliver better after-tax outcomes. In this environment, that matters.”
Looking ahead to 2026, Jocum identified currency and AI as two forces likely to shape allocation decisions. He said flows into currency-hedged global ETFs have doubled compared with historical levels, reflecting investor sensitivity to the Australian dollar’s movements. On the growth side, he expects the AI thematic to broaden beyond mega-cap tech.
“AI isn’t a bubble. There’s meaningful revenue and earnings sitting underneath it,” he said. “As companies pour hundreds of billions into AI infrastructure, investors will want exposure to semiconductors, data centres, nuclear energy, copper and other inputs to the AI supply chain. ETFs are the most efficient way to capture that entire ecosystem.”
For Connolly, the momentum behind ETF adoption reflects a broader shift toward data-driven, cost-conscious investing. “ETF penetration in Australia is still low by global standards, which means the growth runway is enormous. With the right mix of cost efficiency, international reach and transparency, ETFs are becoming a core building block for Australian portfolios. The sophistication we’re seeing among investors is only going to accelerate from here.”
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