A global survey of more than 70 executives has recorded massive optimism for the exchange-traded funds (ETFs) market and the “untapped potential” it offers investors.
PwC’s ETFs 2027: A world of new possibilities report found 70 per cent of respondents expected global ETF assets under management (AUM) would grow to $15 trillion or more by 30 June 2027.
Some 60 per cent believed AUM in Asia Pacific ETFs would reach $2.5 trillion by June 2027.
Recently, Global X research had predicted the exchange-traded products industry would reach a record $200 billion by 2025.
VanEck shared the sentiment, stating the market could reach $150 billion by the end of 2023.
“Despite the record growth rates achieved by ETFs in recent years, the ETF market still offers a huge amount of untapped potential for asset managers to support investors’ needs,” PwC stated.
“The impetus for further growth will be underpinned by an acceleration in ETF product innovation, moves into new and underpenetrated investor segments and new markets where ETFs are a relatively new investment product.”
In terms of product trends, the significant demand for equity ETFs was expected to continue, though fixed income ETFs were expected to drive growth in relative terms.
Moreover, at least 60 per cent ranked thematic ETFs on par with fixed income ETFs when it came to investor demand.
Following net inflows of $102 billion into active ETFs in 2022, 74 per cent of respondents expected significant demand for these funds over the next two to three years. According to PwC, this trend would likely encourage a number of active fund managers to begin offering ETFs by converting or cloning existing mutual fund strategies.
Two-thirds of European respondents (68 per cent) expected more than half of their product launches to be ESG-focused over the next two to three years, far higher than the figure of 25 per cent in the APAC region.
Interestingly, the report noted an appetite for crypto and digital assets, with nearly 40 per cent planning product launches in this area if regulation allowed for it. A large proportion of Asian (78 per cent) and European (60 per cent) respondents anticipated significant demand for digital asset strategies in their regions.
Effective distribution channels appeared to be the number one driver of success among managers.
“Digital distribution, including robo-advisers and online platforms, will help ETF managers to reach more investors as well as gather key insights to help with marketing and product development,” PwC added.
Also, ETF managers in more mature markets were expected to increasingly target untapped opportunities in Africa, Latin America and the Middle East.
“While each of these regions currently has relatively low ETF adoption amongst investors, there is significant potential for growth as the benefits of ETFs become better understood in these markets.”
Looking ahead, PwC’s analysis expected driving innovation, developing distribution channels to tap into retail markets, exploring fast and cost-effective new market entry points, and sharpening data quality and assurance would be key priorities for ETF managers.
