Assets invested in exchange-traded funds (ETFs) will double in the next five years, Cerulli Associates has predicted.
The analytics firm projected that ETF assets will exceed $6 trillion by 2020. The asset class currently totals approximately $3 trillion.
“The slow erosion of mutual fund assets by exchange-traded products will prompt a growing number of asset managers to enter the ETF market.”“While many sponsor firms believe the ETF market will continue to grow organically, growth will largely be a result of more investors using the low-cost vehicle,” said Jennifer Muzerall, a senior analyst at Cerulli. “As new investor segments continue to acclimate to ETFs in their portfolios and sponsors develop new products, ETF assets are expected to climb as the industry enters its second decade.”
The $6 trillion figure may be even higher if enough asset managers get on board with the asset class, the firm said. According to the report, “the slow erosion of mutual fund assets by exchange-traded products will prompt a growing number of asset managers to enter the ETF market.”
“With more asset managers developing an ETF strategy, product proliferation will continue to increase, and firms will need to think strategically about the types of products they develop, attempting to fill any white space that remains untouched,” Muzerall said.
In the last month alone, there have been fourteen new ETFs launched in the US, including offerings from BlackRock, State Street Global Advisors, and Deutsche Asset & Wealth Management, according to ETF.com. The products range from momentum-strategy ETFs to fossil fuel-free index funds.
While market cap equity ETFs are the most popular, accounting for $1.8 trillion in assets as of November, demand for strategic products like smart beta and active ETFs are growing at a fast rate, according to ETFGI.
“As investor sentiment is evolving toward solutions-oriented outcomes, sponsors need to think of ETFs no longer solely as a product, but as a tool for investors to achieve their investment objectives,” Muzerall said.
Related: The $3 Trillion ETF ‘Boom’ & Active ETFs See Record Inflows