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Marie Coady, PwC
Marie Coady, PwC

ETFs set to reach new record levels: PwC 

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Global ETF assets under management are predicted to reach at least USD19.2 trillion by June 2028, up from USD11.5 trillion at the end of 2023, representing a 13.5 per cent compound annual growth rate (CAGR) over the five year period, according to PwC’s latest Global ETF report ‘ETFs 2028: Shaping the future,’ including results from PwC’s 10th annual global ETFs survey  amongst key ETF players in the four main regions of the global ETF market: the US, Europe, Canada and Asia Pacific.   

The firm writes that the ETF industry goes from strength to strength with 60 per cent of the world’s largest asset managers now offering ETFs. 

The report reveals the latest trends and future outlook in today’s increasingly diverse, disruptive and fast-growing global and regional ETF markets.

The US is the largest ETF market, followed by Europe

The US is the largest ETF market, with more than 70 per cent of the global ETF AuM in 2023.  64 per cent of US respondents to the survey expect US ETF AuM to reach at least USD13 trillion by June 2028, representing a 12.5 per cent CAGR over the five year period.  This includes 41 per cent who are even more bullish, believing that US ETF AuM will reach USD15 trillion or more by June 2028, representing a 15.8 per cent CAGR.  

Europe is the second biggest region for ETFs, with 16 per cent of global ETF AuM in 2023. 60 per cent of European survey respondents believe that European ETF AuM will reach USD3 trillion or more by June 2028, representing a 14.3 per cent minimum CAGR over the five year period.  

77 per cent of Asia Pacific (APAC) survey respondents believe that APAC ETF AuM will reach at least USD2.5 trillion by June 2028, representing a 17.8 per cent CAGR over the five year period.  

51 per cent of Canadian survey respondents expect Canadian ETF AuM will reach at least USD700 billion by 2028, representing a 19.6 per cent CAGR over the five year period.  

Retail investors will play an increasingly big part in ETF growth

The survey highlights that retail investors are expected to play an increasingly important segment of future growth looking for easily understandable and accessible direct-to-market products. For example, 57 per cent of European respondents believe that significant demand will come from retail investors over the next few years.  In the US, 82 per cent of survey participants expect that significant demand in the next few years is expected to come from retail investors.  Over two-thirds (69 per cent) of APAC respondents said that significant demand will come from retail investors. 

Millennials highly favour ETFs

PwC’s latest Asset & Wealth Management Revolution report revealed that more than USD68 trillion could be passed from baby boomer parents to millennials by 2030.   Millennials highly favour ETFs according to various investor studies over the past few years. Failure to develop effective mobile and other digital channels could make it harder for managers to connect with younger investors in the future, the firm writes.

Marie Coady, PwC Global ETF Leader, says:  “Growth in ETF AuM is soaring worldwide as the US, Canada and Europe all raise their five-year projections for their regional AuM and the APAC region moves into a new phase of expansion. 

 “Firms will need to find ways to reach those millennial investors who typically manage their own investments.  Marketing through social media platforms, podcasts and apps will be important to target these millennials who prefer real-time information. 

“The race to keep pace with today’s generational shifts and demands for personalised financial solutions will divide the winners from the losers in this fast-evolving ETF and wider asset management arena.”

Demand for active ETFs expected to increase globally in the next two to three years.

Each of the regions surveyed expect significant demand from investors for active ETFs in the next two to three years, led by Canada (82 per cent) and the US (76 per cent).  For example, Canadian active ETF AuM had a 31.6 per cent CAGR over the past five years reaching USD78.2 billion in 2023.  US active ETF AuM had a 35.4 per cent CAGR over the past five years, reaching almost USD514 billion in 2023. Over 70 per cent of the ETFs launched in the US in 2023 were actively managed, with net inflows of USD118.5 billion. 

European and APAC respondents were slightly less bullish with 48 per cent and 50 per cent respectively expecting significant demand for active ETFs over the next two to three years.  While the active AUM is currently relatively small in Europe (USD16 billion) and APAC (USD45 billion), the ETF trends in both these regions tend to follow the US which has experienced significant growth in active ETFs over the past few years.

Fixed-income ETF surge set to continue 

More than eight out of 10 survey respondents expect significant demand for fixed-income ETFs over the next two to three years.  2023 was a bumper year for fixed-income ETFs, attracting USD308.4 billion of investment worldwide, a 24.4 per cent year-on-year increase.  The surge looks set to continue as investors rush to take advantage of current high yields ahead of anticipated reductions in interest rates.  

Digital assets gaining momentum 

Digital assets are gaining momentum. More than a third (36 per cent) of respondents plan to launch digital asset ETFs if regulators allow it in their respective region. The launch of 10 bitcoin ETFs in the US in January 2024 marks a significant event for the ETF industry and bitcoin products. 

Technology, particularly AI,  holds key to transformation

The report notes that technology not only holds the key to cutting costs and bolstering margins, but also to opening up new distribution channels and developing personalised solutions. GenAI,in particular, is adding a fresh urgency to digital transformation.  GenAI can not only improve decision-making and speed up time-consuming tasks, it is also a powerful catalyst for transforming entire processes, functions and business models.

Marie Coady concludes: “The challenge of building and sustaining trust is increasing as what has been relatively easy to understand ETF products become more sophisticated and diverse.  The bar has been raised even further by the increasing use of AI and GenAI in marketing and analysis of investor preferences.”

“ETF issuers need to lead the way on product innovation and business model transformation, with the unprecedented pace of change due to technological and AI disruption. There are opportunities to expand into new investment strategies, access new investors, new distribution channels and enter new emerging territories for distribution of ETFs.”  

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