ETF businesses upbeat on industry growth

Singapore

EXCHANGE traded fund businesses expect to grow by nearly 18 per cent per year for the next three to five years, a global survey of the ETF industry by EY shows.

This is expected as they continue to take market share from traditional active asset managers and passive mutual funds.

EY polled close to 80 promoters, investors, market makers and service providers across the US, Europe and Asia between July and September 2015. The respondents collectively represent issuers managing more than 85 per cent of global ETF assets.

More than 30 per cent of those surveyed expect net inflows of more than 20 per cent over the next 18 months. Nine in ten also expect a cumulative annual growth rate of more than 10 per cent over the next three to five years.

Asian ETF assets have grown at an average rate of close to 30 per cent over the past decade, though in a more volatile way than those in Europe or the US, the survey showed. Respondents expect this growth to continue, with the majority believing their own businesses will grow by 25 per cent to 30 per cent per year over the next three to five years. This is notwithstanding the decline in Asian ETF assets in the first eight months of this year.

ETF assets from the US - the largest ETF market - constitute less than 12 per cent of the US mutual fund market. US ETF providers now manage US$1.9 trillion of assets - four times the total for Europe and 18 times that of Asia, excluding Japan - after averaging cumulative annual growth rates of nearly 24 per cent for a decade.

Product development is moving at a record speed, as 83 per cent of survey respondents expect to increase new product spending in the next 18 months. Most also expect management fees to be relatively unchanged.

"Many providers see the expansion of their investment capabilities instead of the reduction of costs as the best way to relieve margin pressure," said Lisa Kealy, EY EMEIA (Europe, Middle East, India and Africa) ETF leader.

"This trend shows a highly significant industry-wide shift from a vision of growth focused on price competition and low costs to one driven by a more diversified and innovative product range."

Amendment note: EY has clarified that US ETF providers now manage US$1.9 trillion of assets, and not US$1.9 billion, as was earlier announced.