Assets in exchange traded funds (ETFs) in the US are expected to double to USD2 trillion before the end of 2015, according to a new whitepaper from BNY Mellon and Strategic Insight.
The report, ETFs 2.0: The Next Wave of Growth and Opportunity in the US ETF Market, looks at the factors driving the rapid expansion of the ETF market (including exchange-traded notes, or ETNs) and how asset managers can tap the vigorous growth of this industry with products that are passive, active, or somewhere in between.
“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,” says Joseph Keenan (pictured), head of global exchange traded fund services at BNY Mellon Asset Servicing. “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.”
Traditional index-based ETFs are likely to account for a falling overall share of ETF assets as non-traditional and alternative funds grab a larger slice of the market. Since the end of 2008, non-traditional ETFs have grown from 18 percent of the market to an estimated 30 percent of US ETF assets by March 31, 2011, according to Strategic Insight’s Simfund database. The BNY Mellon-Strategic Insight report predicts this trend will continue as investors become less likely to simply allocate their assets among growth stocks, value stocks, large cap stocks, small cap stocks and other traditional categories.
“Non-traditional ETFs will continue to increase their share of the ETF market,” says Loren Fox, senior research analyst at Strategic Insight and an author of the report. “Commodity, leveraged, inverse, actively managed and hedge-fund-like ETFs are among the non-traditional ETF types that should see market share growth between now and 2016.”