The exchange-traded fund (ETF) industry is set to reshape the asset management business in some key ways—at least that’s according to a flurry of research reports released last week. From the largest money managers to the smallest retail investors, they are all finding new ways to use ETFs as well as to access them as product innovation remains paramount for providers.
To sum of the reports, I’ve put together a list seven key findings I thought you might find interesting.
- Big growth ahead – According to the PwC report, professionally managed financial investments will reach US$100 trillion by 2020, with assets growing at 6% annually. As that happens ETFs will be on the frontlines of growth—PwC’s survey shows that three out of four ETF sponsor executives expect ETF assets to double by 2020, reaching US$5 trillion or more.
- Institutional investors will drive ETF asset flows – PwC’s research shows that institutional investors (insurers, pension funds and hedge funds) will create heavy demand for ETFs.
- The rise of smart beta – New types of indexing will be the focus of new product development with 46% of ETF firms calling it their most important area of innovation, says PwC.
- Access and expertise will be key – Strategists and robo-advisors will continue to make it easier for investors to use ETFs, according to SEI’s research. This point always reminds of this key finding from Canadian Investment Review’s 2014 ETF Summit where one plan sponsor was ready to make an allocation to U.S. ETFs but couldn’t actually find anywhere that would take the order.
- ETF providers to get better at explaining what they do – One of the biggest barriers, arguably, to ETF adoption is education—from retail investors to large institutions, ETF providers must explain what their products are, how they work and how best to use them in a portfolio. According to SEI, education-focused marketing will be a key trend shaping the industry in the coming year. Combine that with Point 4 on this list and we could finally see significant traction for ETFs in the retail space in Canada.
- Europe is ahead of the rest of us – Finally, a new survey from Greenwich Associates shows that European institutional investors are slightly ahead of North Americans when it comes to using ETFs in their portfolios. Complex investment strategies are driving the trends as insurers and pension funds seek to outsource a growing portion of their assets.
- European institutions are using ETFs for more– All told, 42% of European institutions are using fixed income ETFs and 20% are using innovative forms of ETFs such as smart beta ETFs, with minimum-volatility and factor ETFs being the most popular iterations. Seventy-one percent are using ETFs in multi-asset funds, while pension funds are using ETFs for a variety of tactical and strategic functions, including liquidity management, rebalancing, risk management and cash equitization.