Significant growth in the exchange traded funds market over the next five years is expected to be driven by expansion into new markets, developing distribution channels and asset classes.

A report by PwC, ETFs: A roadmap to growth has predicted significant growth in the exchange traded funds (ETFs) over the next five years. It expects global assets under management (AUM) to exceed $7 trillion by 2021, with new markets, expanding distribution channels and asset classes the main drivers of this growth. New technology and data analytics are also expected to fuel much of the growth, by enabling new products and develop distribution channels.

The report also gives a picture of growth in regional markets:

• the North American ETF market is expected to grow to $5.9 trillion by 2021 (a 23 per cent cumulative annual growth);
• the European market is expected to grow 27 per cent annually – reaching $1.6trillion AUM by 2021; and
• Asian firms expect ETF AUM to reach $560 billion by 2021 – an 18 per cent annual growth rate over five years.

Bright future for ETFs but not without challanges

PwC's global ETF leader, Nigel Brashaw, commented: “The global ETF market has a bright future ahead but the next few years will not be without their challenges. The ETF market continues to be increasingly crowded, particularly in North America and Europe, where both maturity and momentum continues to dominate.”

The survey also found that:

• increased regulations are seen as a major obstacle to growth by almost half (47 per cent) of the survey’s respondents;
• the strength of a corporate brand was listed as the most important factor in raising assets under management, with 60 per cent seeing it as very important;
• investment track record and a differentiated investment strategy were also noted to be very important factors of future growth; and
• just 35 per cent of ETF firms believe that lower costs are a potential differentiator for them in the future.