With last year proving to be another record year for growth in exchange-traded fund assets, it has been estimated that the market could reach $6 trillion (€5.5 trillion) by 2020.
According to consultancy EY’s Global ETF Survey, the prediction comes after a decade of growth averaging 21.5% per year, which as of August 2016 brought ETF assets to $3.4 trillion.
However, the report says as the industry continues to grow, it is going to become more difficult for firms to deliver continued expansion.
For growth to continue, EY suggests that product development, market entry and digital disruption are key areas to concentrate on.
While product development continues to grow in importance in the ETF industry, 64% of the 70 ETF industry figures surveyed for the report expect new products to become less successful in the future.
The survey said that the growth of more complex ETFs is making it more difficult for promoters to test new products. This is compounded by a focus of getting products to market as quickly as possible.
The success of ETFs is bringing new players to the market, last year there over 50 new entrants. Of those surveyed, 90% expect more new players to enter the market and, in the US, the figure is 100%.
Respondents identified active managers (22%) and asset managers with no current ETF offering (20%) as the type of promoters likely to enter the market in the next two years.
We’ve already seen traditional active houses launching or planning to launch ETFs, including Fidelity and Franklin Templeton and it’s likely that others will not want to miss out on this growth market.
In terms of digital disruption, the ETF industry lags behind when it comes to innovative distribution models. Only 10% of survey respondents believe their distribution model is suitable for today and the future, compared to 20% who view it as insufficient.
The emergence of robo-advisers could be a game changer as 88% of respondents expect the technology to accelerate ETF growth. Nearly half (45%) think robo-advisors will deliver in excess of 10% of annual inflows within three to five years.
“The industry needs to embrace digital innovation ¾ and investors’ appetite for digital technology ¾ to define a new distribution model,” said Matt Forstenhausler, EY Global ETF leader.
©2016 funds europe
