Assets in exchange-traded funds in the US are expected to double to $2 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 U.S. 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, head of global ETF 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 nontraditional and alternative funds grab a larger slice of the market. Since the end of 2008, nontraditional ETFs have grown from 18% of the market to an estimated 30% of US ETF assets as of March 31, 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.
“Nontraditional 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 nontraditional ETF types that should see market share growth between now and 2016.”
Strategic Insight is a sister company of Global Custodian.
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