Global Exchange Traded Funds Are Speeding Past Hedge Funds

Photo: Getty

The exchange traded funds industry could soon surpass hedge funds in assets under management, according to EY’s Global ETF Survey.

While growth rates will be highest in Asia and lowest in the more mature US market, the drivers will be the same: foreign currency share classes, fund of fund ETFs, new emerging market funds and commodity ETFs.

At the end of October 2013, the industry had assets of USD 2.3 trillion from 215 providers on 58 exchanges.

According to some estimates, hedge funds may already have been overtaken by EFTs.

Antoinette Elias, EY’s Oceania Wealth and Asset Management Leader, says growth will come from more wide-spread users of, and uses for, ETFs as they take market share from competitors.

The EY Global ETF Survey interviewed more than 60 promoters, market makers, investors and service providers over 13 markets, including promoters representing 87% of the industry’s global assets. The interviews were conducted during October and November 2013.

Growth rates in Asia-Pacific are among the highest in the world at around 20-30% per a year.

This compared to an average of 15-20% in Europe and 15% in the US market, which holds around 70% of global ETF assets.

“In Australia, the ETF market still has a lot of room for growth,” says EY’s Elias.

“Given ETFs are often marketed as lower cost investment options to active management, it will be interesting to see whether initiatives like the MySuper low cost option start looking to ETFs to deliver investment styles attractive to that type of offering.”

Expectations of retail growth have become more upbeat across the globe this year, with 49% expecting retail investors to drive business, compared to just 20% last year.

Asia sees see very strong potential for retail take up of ETFs (57%).

However, this year the industry also seems increasingly aware of how vulnerable it could be to the negative effects of a scandal, especially in the retail market.

NOW WATCH: Money & Markets videos

Want to read a more in-depth view on the trends influencing Australian business and the global economy? BI / Research is designed to help executives and industry leaders understand the major challenges and opportunities for industry, technology, strategy and the economy in the future. Sign up for free at research.businessinsider.com.au.