The majority of asset managers will have an exchange-traded fund (ETF) offering in the next five years, with the ETF global market on track to reach US$7.6 trillion by the end of 2020, according to the EY’s report.
The “Global ETF Research 2017: reshaping around the investor” study, based on interviews with ETF market makers, service providers and promoters, also found that 15 per cent to 25 per cent (US$250 billion) of ETF inflows over the next three years would come from new investors.
Furthermore, the new investors would help transform the current ETF market as they typically turn to ETFs for selected exposures. Moreover, those of new investors who would become comfortable with ETFs would be more willing to use ETFs as the building blocks of portfolio construction, the study revealed.
In Australia, the ETF market capitalisation rose by 39 per cent in the last 12 months, to $33.3 billion as at 31 October, and would continue to be retail investor driven.
On the other hand, according to 97 per cent of interviewees, institutional investors would continue to dominate the global ETF market over the next three years.
The study also found that the ETF offerings would help new entrants defend against declining mutual fund inflows and for many of them ETFs would only form a part of their product range and would focus on fixed income or smart beta.
Additionally, assets in passive funds would exceed assets in active funds globally in 10 years and ETFs would benefit disproportionately from the shift because of their low fees and intraday liquidity in volatile markets.
EY Oceania Wealth and Asset Management’s leader, Antoinette Elias said: “ETFs can no longer just be cheaper or more liquid than actively managed mutual funds.
“Australian investors are increasingly turning to ETFs for simplicity, transparency, low cost and diversification, and due to easy access.
“ETFs growth may in part be due to perceived dissatisfaction with the performance and high fees of traditional active managers, but investment advisers on the whole would argue that passive investment should only form part of a diversified investment strategy.
“To take the advantage of the attractiveness of ETFs, active managers have launched active exchange traded managed funds in the last two years and this trend, together with increasing numbers of smart-beta ETFs, is expected to continue.”
