Exchange-traded fund assets are anticipated to reach $7.6 trillion by 2020 thanks to upcoming regulations and an increased number of participants, according to new research.
A new survey from Ernst & Young found that all active fund houses are likely to have introduced ETFs to their product ranges by 2022. It also found that directives like MiFID II in Europe and the US Department of Labour’s Fiduciary Rule would boost uptake.
Phenomenal ETF assets
The ETF market has already seen phenomenal growth as more data on the relative inconsistency of active fund performance has become available, driving investors to switch from active to passive funds.
Total ETF assets currently stand at over $4 trillion, and are expected to reach $4.4 trillion by the end of 2017. In 2009, global ETF assets were just over $1 trillion.
By 2027, the auditing company expects assets in ETFs to overtake those in active funds, a centre of debate among industry participants for several years.
E&Y pointed to ETFs’ low fees and intraday liquidity, which were attractive features during a volatile market.
New ETFs might struggle
Despite this anticipated success, the boost in assets might not translate to help new ETFs in the market, as large providers such as BlackRock, Vanguard and State Street Global Advisors still dominate the flows, claiming 80 per cent of the global market.
MiFID II will be implemented in January and will ban inducements, while in the US, the fiduciary rule will come into force by July 2019, requiring financial advisers to act in the best interests of their clients and be transparent about fees and commissions.
Return to risk-on markets
Another boost to ETFs is the recent turnaround in a sell-off in the US and Europe seen earlier this month. Investors have allocated $371 million to junk bond ETFs this week, with BlackRock’s HYG gathering its biggest inflow in almost two months, according to Bloomberg.
The move to non-investment grade debt is a sign that the rally in the western world has no sign of slowing, a decade after the financial crisis of 2008.