BY Fraser Tennant
Exchange Traded Funds (ETFs) are expected to grow exponentially over the next five years, with global assets under management (AUM) set to top $7 trillion, according to a report released this week by PwC.
In ‘ETFs: A roadmap to growth’, PwC predicts that the ETF market will achieve further significant growth through entering new markets, expanding distribution channels and asset classes.
The report’s main findings show that: (i) the North American ETF market is expected to grow to $5.9 trillion by 2021 (a 23 percent cumulative annual growth); (ii) the European market is expected to grow 27 percent annually (reaching $1.6 trillion AUM by 2021); and (iii) Asian firms expect ETF AUM to reach $560bn by 2021 (an 18 percent annual growth rate over five years).
Furthermore, the top three segments that are driving this growth globally are financial advisoes, online platforms and retail investors (online platforms having overtaken wealth management platforms to take its place within the top three).
Also found to be a factor in the growth of ETF markets is the advances seen in technology and data analytics, which have encouraged new product creation and driven an evolution in distribution channels. In addition, says the PwC report, digital technology and Big Data will continue to enable successful firms to improve decision making processes, streamline costs and transform investor relationships.
“The global ETF market has a bright future ahead but the next few years will not be without their challenges," said Nigel Brashaw, global ETF leader at PwC. “The ETF market continues to be increasingly crowded, particularly in North America and Europe, where both maturity and momentum continues to dominate.
“Many firms are looking to expand their global footprint which presents challenges as well as opportunities with respect to local and global regulations, tax laws and establishing working relationships with distribution partners.”
Another key challenge and one cited as a major obstacle to growth by 47 percent of survey respondents is that of increased regulation.
Mr Brashaw continued: “Firms across the globe that wish to take advantage of the booming ETF industry will need to invest in investor education, differentiated products and strong distribution channels. There is plenty of competition in the sector and we expect the industry to grow at a healthy and accelerated rate.”
The PwC report surveyed executives (more than 70 percent of the participants were ETF managers or sponsors from approximately 60 firms around the world) during 2015 using a combination of structured questionnaires and in-depth interviews.
Report: ETFs: A roadmap to growth