ETFs’ AUM nipping at the heels of mutual funds
27 October 2015 Jersey City
Image: Shutterstock
Domestic assets under management (AUM) for US exchange-traded funds (ETFs) have grown by 6.1 percent from August 2014 to 2015, according to a new Pershing report.
The report, What Lies Beneath: Understanding the Structure and Costs in ETFs, states that ETFs’ AUM has risen from $1.88 trillion in August 2014 to $1.995 trillion as of August 2015.
“ETFs have a long way to go to match total assets of their mutual fund counterparts, PwC conservatively forecasts that global ETF assets will reach $5 trillion by 2020, nearly doubling its current levels of $2.7 trillion in less than five years,” states the report.
In contrast, domestic assets for mutual funds fell by 1.6 percent in the same time period.
Total US mutual funds’ AUM dropped from $15.875 trillion to $15.627 trillion.
The report also analysed expense ratios for ETFs and mutual funds.
“ETF expense ratios are generally less than those of corresponding mutual funds”, the report stated.
“One important reason,” said Brian Brennan, vice president of global ETF product management at BNY Mellon, “is the creation and redemption mechanism unique to ETFs.”
“The cost of trading the underlying securities is borne by market makers who drive the primary trading of ETFs, rather than by the actual fund.”
“Conversely, a mutual fund bears the costs of trading its underlying securities itself.”
“But those costs don’t always stay low for long.” Brennan pointed to “nuances” in certain types of ETFs that are not included in expense ratios, which can quickly add up.
“It’s important to watch for those when considering more complex types of ETFs,” he said, specifically mentioning leveraged and inverse ETFs, as well as master limited partnerships ETFs.
The report, What Lies Beneath: Understanding the Structure and Costs in ETFs, states that ETFs’ AUM has risen from $1.88 trillion in August 2014 to $1.995 trillion as of August 2015.
“ETFs have a long way to go to match total assets of their mutual fund counterparts, PwC conservatively forecasts that global ETF assets will reach $5 trillion by 2020, nearly doubling its current levels of $2.7 trillion in less than five years,” states the report.
In contrast, domestic assets for mutual funds fell by 1.6 percent in the same time period.
Total US mutual funds’ AUM dropped from $15.875 trillion to $15.627 trillion.
The report also analysed expense ratios for ETFs and mutual funds.
“ETF expense ratios are generally less than those of corresponding mutual funds”, the report stated.
“One important reason,” said Brian Brennan, vice president of global ETF product management at BNY Mellon, “is the creation and redemption mechanism unique to ETFs.”
“The cost of trading the underlying securities is borne by market makers who drive the primary trading of ETFs, rather than by the actual fund.”
“Conversely, a mutual fund bears the costs of trading its underlying securities itself.”
“But those costs don’t always stay low for long.” Brennan pointed to “nuances” in certain types of ETFs that are not included in expense ratios, which can quickly add up.
“It’s important to watch for those when considering more complex types of ETFs,” he said, specifically mentioning leveraged and inverse ETFs, as well as master limited partnerships ETFs.
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