Global assets in exchange traded funds could rocket to nearly $5 trillion within four years, according to a report released Tuesday by McKinsey & Co.
ETF assets under management may grow from approximately $1.5 trillion today to between $3.1 trillion and $4.7 trillion by the end of 2015, according to the study.
“Not since the advent of index funds, hedge funds or possibly the mutual fund itself, has the asset management industry witnessed an innovation as profound as ETFs,” McKinsey & Co. says. [ETFs Alter the Landscape]
“Over the past decade, no other significant segment of the U.S. asset management industry has grown as quickly and consistently as ETFs,” according to the report. “From 2000 to 2010, exchange traded product assets under management grew over 30% annually, compared to 5% to 6% for U.S. mutual funds.” [How ETFs are Changing Markets, Investing]
One factor driving the industry’s growth is that ETFs have given investors low-cost, liquid exposure to more asset classes by “democratizing” markets to a greater degree, the paper argues.
The rapid rise in ETF assets has resulted in more competition between providers and a surge in new products. Additionally, more ETFs are closing due to lack of interest, suggesting the market is getting “close to saturation,” the analysts wrote.
However, the global business is benefiting from a renewed focus on investment costs, the rise of the fee-based advisor model, more regulatory emphasis on product transparency and rising investor awareness of ETFs.
“While active ETFs are a nascent product category today, they have the potential to initiate a new growth curve for the asset management industry as a whole,” McKinsey & Co. added. [BlackRock CEO Says Industry to Lose Money on Active ETFs]
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.