Report: Global ETF Assets to Hit $4.7 Trillion by 2015

(August 17, 2011) — Global assets in exchange-traded funds (ETFs) are expected to reach $4.7 trillion in four years, according to a report by consultant McKinsey & Co.

The report — titled “The Second Act Begins for ETFs” — claims that assets under management in ETF products, including exchange-traded commodities and exchange-traded notes, have ballooned 31% from 2000 to 2010. This compares with an AUM growth of about 5% to 6% for mutual funds during the same time period. Furthermore, McKinsey & Co.’s research notes that the next phase of ETF growth will be characterized by heightened competition, along with an increase in active ETFs and globalization of the marketplace. “ETFs are now a hotbed of competition,” the report says, “with an expanding and aggressive array of competitors.”

Previously, a report by BNY Mellon and aiCIO‘s sister company Strategic Insight — which analyzes the factors fueling the rapid expansion of the ETF market and how asset managers can profit from the expansion — predicted similarly optimistic findings. In a report published last month, the firms found that ETF assets will reach $2 trillion by 2015.

The report — titled “ETFs 2.0: The Next Wave of Growth and Opportunity in the U.S. ETF Market” — revealed that ETF assets grew by 28% to just more than $1 trillion in 2010, down from the 47% growth rate in 2009. Furthermore, roughly half of the U.S. ETF assets came from institutional clients.

According to Loren Fox, senior research analyst at Strategic Insight and an author of the report, investors are increasingly willing to use ETFs following the global financial crisis as they are increasingly willing to pay more for innovative products that promise greater return and lower volatility.

“The next wave of growth for ETFs is being driven by new asset classes, new indexes and new ways to use ETFs as tools for portfolio construction,” said Joseph Keenan, head of global ETF services at BNY Mellon Asset Servicing, in a release. “The ever increasing sophistication of these newly created ETFs can pose operational and distribution challenges for asset managers. However, with detailed planning and a focused strategy, a variety of innovative exchange-traded products can be brought to market to effectively meet investors’ needs.”

The report follows a recent Greenwich Associates study that revealed that institutional investors are increasingly bullish on using ETFs in their portfolios.

“Perhaps even more telling than those findings is the fact that not a single asset manager reported plans to cut ETF allocations in the coming two years, and less than one in 10 institutional funds plan to reduce allocations to ETFs in that period,” says Greenwich Associates consultant Andrew McCollum.