PwC’s Look at the Present and Future of ETFs

The exchange traded products industry is into its second decade of exponential growth. On a global basis, there were $2.2 trillion in ETP assets under management at the end of August.

Industry growth is still in the early innings as some observers expect increased adaptation of ETFs, by both professional and retail investors, could help the industry-wide AUM total more than double over the next several years.

“Despite the positive developments and optimistic outlook, there is no denying that a business-as-usual approach is unlikely to lead to success in the future,” according to a report by PwC’s asset-management strategists. 

Advisors have embraced ETFs, helping drive the industry’s stellar growth rate in recent years, but the expectation is that larger institutional investors, such as endowment and pension plans, along with hedge funds will drive ETF growth in the future.

“The institutional client base will continue to become more diverse, with investors ranging from insurance companies to hedge funds and retail investors expected to contribute meaningfully to the growth of ETF assets,” said PWC. [Schwab Impact: How Advisors are Adapting to ETF Growth]

PwC highlighted some of the advantages of ETFs that long-time users are already familiar with, including liquidity, transparency, cost efficiencies, tax efficiency and intra-day pricing.

“For many, ETFs represent a better ‘mouse trap’ when compared to traditional mutual funds. This is particularly true for advisors who have been at the forefront of a movement that places less emphasis on security selection while focusing more heavily on asset allocation,” PwC said in the report. [How Advisors can Target Service to ETF Clients]

However, there are still mountains to climb for the ETF business, including the retirement market. In particular, the 401(k) market, which some view as a mega-growth frontier for the ETF industry. The issues is getting there.