MarketMuse update courtesy of ETF Trends’ Tom Lydon.
The U.S. exchange traded products industry hit a major milestone last year, eclipsing $2 trillion in assets under management, but industry observers do not see that growth slowing. Rather, it is expected that ETFs will continue their exponential growth rate in the years ahead.
While it took nearly two decades for the ETF industry to reach $2 trillion in assets, it will not need nearly as long to get to $5 trillion, according to a new report by PwC. The PwC repots says the global ETF industry will reach $5 trillion in combined AUM by 2020.
“New types of indexing (also referred to as “smart beta”) represent a hotbed of product development activity with 46 percent of firms surveyed identifying this as the most important area of innovation. PwC expects this to continue for the near-term. Active ETFs (34 percent) and alternatives (29 percent) are also expected to be sources of significant ETF growth between now and 2020,” according to the “ETF 2020” report.
The rise of strategic beta ETFs has also played a significant role in boosting U.S. ETF assets. As of late August, assets under managements across smart beta ETFs totaled $350 billion, a 30% year-over-year increase. Much of that growth has been driven by institutional investors, including large money managers, endowments and pensions. The growth of these non-traditional ETFs has been exponential as smart beta ETFs accounted for just 19% of total industry assets at the end of 2013. [U.S. ETFs top $2 Trillion in AUM]
Some industry observers also see actively managed ETFs being a key driver of ETF industry growth in the coming years. For the week ending Jan. 16, U.S.-listed actively managed ETFs had a combined $17.24 billion in AUM with nearly half that total allocated to PIMCO and First Trust ETFs, according to AdvisorShares data.
While that is just a fraction of the overall U.S. ETF industry, increased demand for active ETFs and the potential for a more favorable regulatory environment could make actively managed ETFs a $500 billion asset class by 2020, according to a report by publishedSEI Investments last year. [Big Growth Seen for Active ETFs]
“In the U.S., institutional investors, including registered investment advisors, wealth management platforms, other asset managers, endowments and foundations are each expected to continue to expand their investments in ETFs between now and 2020,” said PwC.
Those comments jibe with data released last year by several major ETF issuers that show institutional investors are increasingly turning to ETFs.
Institutional investors continue to be key drivers of ETF asset growth, a theme that is expected to continue in 2015. In its 2014 U.S. Institutional ETF Usage Report, BlackRock (NYSE: BLK) notes the “results show that institutional use of ETFs is expected to rise across the board. This trend holds true for both existing institutional ETF investors and those who do not currently hold ETFs.” [Institutions Boost ETF Usage]
Fixed income and global ETFs are expected to be favorites of institutional investors this year. That prediction has proven accurate to this point in 2015 as three international ETFs and one bond fund rank among the top 10 asset-gathering ETFs on a year-to-date basis.