According to a Tiburon Strategic Advisors study, ETFs and other indexed products will gather $10.4 trillion in assets by 2017.
By then, total assets will rise from 7% of total world equity market capitalization to 25% as net flows increase to $665 billion, or up 100%, reports Donald Jay Korn for On Wall Street.
The U.S. ETF business currently stands at about $1.4 trillion.
“Active managers are unable to consistently beat the market while index managers offer lower costs and better tax efficiency,” Chip Roame, Tiburon’s managing partner, said in the article. “ETFs themselves have even more benefits.”
For instance, ETFs have intraday trading, portfolio transparency, use of margin and short trades.
“ETFs are becoming widely utilized for a host of investment management strategies, including sector rotation and tactical asset allocation,” Roame added. “ETFs will absolutely explode in growth when they get into 401(k) plans… the last holdout of positive mutual fund flows.”
Moreover, Roame sees a growing interest in personalized indexing, which will grow to $33 billion by 2017.
“Personalized indexing is adapting an index specifically for sophisticated investors who need a slight tweak for themselves,” Roame said. “The CEO of a major corporation might say, ‘Build me an S&P 500 index excluding exposure to my industry because I have enough of that risk in my job.’”
Roame also points to independent advisors as a major factor for the growing interest in indexed products.
“RIAs will boost their use of ETFs substantially in coming years (it is now about 6%) because they want to charge fees on the accounts,” Roame said. “The RIA channel is the most fiduciary-minded of the advisory channels so RIAs will look for the lowest-cost products to put inside their fee accounts. The largest RIAs have long been big users of index mutual funds.”
The actively managed ETF space could “take hold eventually,” but the active space still face some hurdles, such as small track records, Roame added.
For more information on the ETF industry, visit our current affairs category.
Max Chen contributed to this article.
The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.