PwC: global growth on the cards for ETFs
11 July 2016 New York
Image: Shutterstock
The global exchange-traded fund (ETF) market is gearing up for a growth spurt, according to a survey by PwC.
The survey report noted that ETFs saw a record $351 billion in global flows in 2015, while ETF assets under management have increased from $1.46 trillion in December 2010 to $2.96 trillion in December 2015.
Of the survey respondents, 41 percent predicted that global ETF assets under management will reach $7 trillion, or more, by 2021. Although 28 percent predicted this will reach $5 trillion or less, 13 percent said they think it will increase to reach $10 trillion or more.
When asked what they perceive to be the biggest growth accelerators, better investor education was a popular choice in all regions.
In Europe, investor education was named as an important growth indicator by 90 percent of respondents. This was followed by lower distribution costs and availability of new distribution platforms.
In North America, the availability of new distribution platforms was considered the biggest growth accelerator, noted by about 85 percent of respondents. This was followed by better education for investors, while lower distribution costs and lower costs for service providers came in as joint third accelerators.
Among Asian firms, however, the stock connect programme was unsurprisingly named the biggest growth accelerator, highlighted by about 80 percent of respondents. This was closely followed by availability of new distribution platforms and better investment education.
Despite the opportunities for growth, 47 percent of respondents agreed that regulations could prove to be an obstacle for growth. A further 42 percent said growth could be hindered by a lack of effective distribution channels.
Almost a quarter, 23 percent, said that an improved market environment could take the focus off of the advantages of ETFs, presenting an obstacle for growth, while 13 percent said extreme market conditions could dampen demand, and 11 percent saw concern around market saturation.
Expectations around the demand for ETFs differed by region. In North America, more than 90 percent said they expect demand from financial advisors. Just over 80 percent saw demand from online platforms and 70 percent expect demand from individuals in the retail space.
Although about 50 percent of European respondents also said they see demand coming from financial advisors, this was equalled by those naming financial advisors and online platforms as drivers for demand.
In Asia, the majority, about 70 percent, said insurance companies will be the main drivers for demand of ETFs. This was followed by ETF strategists, noted by about 60 percent, and financial advisors, named by about 50 percent.
With regards to globalisation, 71 percent of European firms and 83 percent of Asian firms expect to expand with ETF products outside of their home markets, compared to 50 percent in North America.
Of those firms looking to expand globally, European and North American firms said they consider effective distribution channels and infrastructure as the most important factor to cross-border success. In Asia, however, knowledge of market regulations and taxes in the local market was considered more important.
The report said: “Over the next five years, we expect that there will be increasing competition in ETF markets across the globe and firms will likely need to continue to seek ways to differentiate themselves in these crowded markets. Continued focus on investor education, adapting product offerings to evolving regulations, navigating complex global markets, and establishing strong distribution partners will be some of the keys to success.”
“Further advances in the use of big data, digital technology and social media will help to improve decision-making processes, provide opportunities for ETF sponsors to streamline costs, and transform client relationships in terms of communications, sales and distribution.”
The survey included respondents from 60 firms around the world, throughout 2015. More than 70 percent of respondents were ETF managers or sponsors, and the rest were either service providers or asset managers that do not currently offer ETFs.
According to PwC, the participating firms currently account for more than 80 percent of global ETF assets.
The survey report noted that ETFs saw a record $351 billion in global flows in 2015, while ETF assets under management have increased from $1.46 trillion in December 2010 to $2.96 trillion in December 2015.
Of the survey respondents, 41 percent predicted that global ETF assets under management will reach $7 trillion, or more, by 2021. Although 28 percent predicted this will reach $5 trillion or less, 13 percent said they think it will increase to reach $10 trillion or more.
When asked what they perceive to be the biggest growth accelerators, better investor education was a popular choice in all regions.
In Europe, investor education was named as an important growth indicator by 90 percent of respondents. This was followed by lower distribution costs and availability of new distribution platforms.
In North America, the availability of new distribution platforms was considered the biggest growth accelerator, noted by about 85 percent of respondents. This was followed by better education for investors, while lower distribution costs and lower costs for service providers came in as joint third accelerators.
Among Asian firms, however, the stock connect programme was unsurprisingly named the biggest growth accelerator, highlighted by about 80 percent of respondents. This was closely followed by availability of new distribution platforms and better investment education.
Despite the opportunities for growth, 47 percent of respondents agreed that regulations could prove to be an obstacle for growth. A further 42 percent said growth could be hindered by a lack of effective distribution channels.
Almost a quarter, 23 percent, said that an improved market environment could take the focus off of the advantages of ETFs, presenting an obstacle for growth, while 13 percent said extreme market conditions could dampen demand, and 11 percent saw concern around market saturation.
Expectations around the demand for ETFs differed by region. In North America, more than 90 percent said they expect demand from financial advisors. Just over 80 percent saw demand from online platforms and 70 percent expect demand from individuals in the retail space.
Although about 50 percent of European respondents also said they see demand coming from financial advisors, this was equalled by those naming financial advisors and online platforms as drivers for demand.
In Asia, the majority, about 70 percent, said insurance companies will be the main drivers for demand of ETFs. This was followed by ETF strategists, noted by about 60 percent, and financial advisors, named by about 50 percent.
With regards to globalisation, 71 percent of European firms and 83 percent of Asian firms expect to expand with ETF products outside of their home markets, compared to 50 percent in North America.
Of those firms looking to expand globally, European and North American firms said they consider effective distribution channels and infrastructure as the most important factor to cross-border success. In Asia, however, knowledge of market regulations and taxes in the local market was considered more important.
The report said: “Over the next five years, we expect that there will be increasing competition in ETF markets across the globe and firms will likely need to continue to seek ways to differentiate themselves in these crowded markets. Continued focus on investor education, adapting product offerings to evolving regulations, navigating complex global markets, and establishing strong distribution partners will be some of the keys to success.”
“Further advances in the use of big data, digital technology and social media will help to improve decision-making processes, provide opportunities for ETF sponsors to streamline costs, and transform client relationships in terms of communications, sales and distribution.”
The survey included respondents from 60 firms around the world, throughout 2015. More than 70 percent of respondents were ETF managers or sponsors, and the rest were either service providers or asset managers that do not currently offer ETFs.
According to PwC, the participating firms currently account for more than 80 percent of global ETF assets.
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