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ETF industry set for huge growth by 2020

A global survey of the exchange traded fund (ETF) industry has indicated that ETFs are having a growing impact on the funds and asset management industry as a whole.

The Global ETF Survey 2015, conducted by EY, put expected growth of ETFs at 18% over the next three to five years, despite ongoing economic uncertainty.

The survey found that:

  • more than 90% of those surveyed expect the industry to see positive net new business over the next 18 months;
  • 34% predicting net inflows of more than 20%;
  • 91% expect to achieve a cumulative annual growth rate of more than 10% over the next three to five years; and
  • 27% expect annual growth exceeding 25% over the same period.

In terms of products, the survey found there was a swing in demand from fixed income to equity and the 'optimal seed capital amount' has risen from $19m to $31m, while the minimum size of a fund has decreased from $80m to $63m. There are also more new product launches, with 83% of survey respondents expecting to increase new product spending in the next 18 months.

Regulation will be a key challenge for the ETF industry and regulators are focusing on this sector due to its growth.

EY interviewed nearly 80 leading promoters, investors, market makers and service providers across the US, Europe and Asia-Pacific between July and September 2015. The sample of respondents are from issuers managing 86% of global ETF assets.

The US continues to lead the ETF market, with US ETF providers now managing US$1.95b of assets — four times the total for Europe and 18 times that of Asia, excluding Japan. However, ETF assets are still less than 12% of the US mutual fund market. Matt Forstenhausler, EY global ETF leader, says: “US-based ETF providers continue to lead in innovation and the introduction of product into new markets. The process of issuing, trading, selling and administering ETFs varies significantly between regions and countries. Accordingly, as they look to grow internationally, providers, market makers and service providers find it necessary to adapt their business models to local conditions.”

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