Global ETF funds to hit $2 trillion in 12 months

Global assets under management in exchange-traded funds (ETFs) and exchange-traded products (ETPs) will pass US$2 trillion in early 2012, and US$2 trillion purely in ETFs by the end of 2012, according to BlackRock.

BlackRock’s Global ETF research and implementation strategy team has predicted a 20-30 per cent annual increase over the next three years in the global ETF/ETP industry, which at 31 December 2010 had 3,503 products and US$1.482 trillion from 168 providers on 50 exchanges around the world.

The expansion will be driven by the number and types of assets covered, more platforms embracing ETFs, increased marketing by online brokers, greater involvement by fee-based advisers, more exchanges adopting ETFs, and regulatory changes in several markets allowing larger allocations to ETFs, according to BlackRock’s global head of ETF research and implementation strategy Deborah Fuhr.

Many investors turned to ETFs after the global financial crisis due to a desire for liquidity and a shift in risk appetite, Fuhr said.

And despite growth in alternative asset class ETFs, investors will continue to prefer ETFs based on broad-market indices that serve as core holdings, she said.

“With today’s increased market volatility, no single sector, style, or stock consistently outperforms its peers. Having core holdings invested in broad-market indices not only helps reduce volatility but can also achieve competitive returns for the overall portfolio.”

ETFs have changed the way both institutional and retail investors construct investment portfolios, and ETFs would likely continue to be one of the preferred investment vehicles for low-cost beta exposure across both retail and institutional markets, Fuhr said.