Statistics

ETFs To Become $100 Trillion Industry By 2020 - PwC

Tom Burroughes, Group Editor, 27 January 2015

articleimage

Investments channelled via exchange traded funds are expected to expand at an annual rate of 6 per cent to reach $100 trillion by 2020, with insurers, pension funds and hedge funds helping to propel growth, a report said.

Investments channelled via exchange traded funds are expected to expand at an annual rate of 6 per cent to reach $100 trillion by 2020, with insurers, pension funds and hedge funds helping to propel growth, a report said.

ETFs, which track indices of equities, bonds, infrastructure, commodities and other assets, have ballooned in recent years, in part due to their often being cheaper in fees than other, more traditional index-tracking peers. ETFs are often regarded as relatively efficient ways to tap into otherwise hard-to-enter asset classes.

In its report, PricewaterhouseCoopers surveyed executives from 60 ETF sponsors, asset managers and service providers around the world and revealed more than three out of four executives expect ETF assets to double to reach at least $5 trillion by 2020. Some 59 per cent of ETF sponsors expect their business to become more profitable in 2015, the report found.

Institutional investors are widely expected to be the primary global growth driver, with insurance companies, pension plans and hedge funds projected to be significant sources of demand for ETFs.

Another force boosting ETF growth, the report said, is the move last year by the UK's finance minister, George Osborne, to give holders of pension funds more control over their money.

Europe and the US are expected to continue to dominate the ETF landscape although the highest rates of growth are expected to be found in the less mature markets of Asia, Latin America, the Middle East and Africa, the report continued.

New types of indexing (also referred to as “smart beta”) represent a hotbed of product development activity, with 46 per cent of firms surveyed identifying this as the most important area of innovation. Active ETFs (34 per cent) and alternatives (29 per cent) are also expected to be sources of significant ETF growth between now and 2020.

While the definition of smart beta varies, one fairly common definition is that a smart beta fund, for example, tracks a style index or uses a mechanical investing strategy to obtain the returns associated with a particular strategy without the cost of active management. One example might be an index tracking returns obtained by value investing. Late last year, Invesco PowerShares said demand for such products in Europe is growing rapidly.

 

Register for WealthBriefing today

Gain access to regular and exclusive research on the global wealth management sector along with the opportunity to attend industry events such as exclusive invites to Breakfast Briefings and Summits in the major wealth management centres and industry leading awards programmes