Demand for ETFs Is Only Expected to Grow

The ETF universe has doubled in size in just five years, and the expansion does not seem like it will lose momentum any time soon.

According to ETFGI data, the global ETF market held $2.16 trillion in assets under management back in July 2013, but the industry has continued to set record growth and by the end of July this year, assets have surged to $5.12 trillion, the Financial Times reports.

“ETFs are competing head-to-head with mutual funds in the US — and winning. It’s just a matter of time before Europe and Asia follow suit,” Amin Rajan, chief executive of Create Research, told the Financial Times.

Over the past ten years, ETFs have quickly gained in popularity as an efficient, easy-to-use and cheap investment vehicle. Investors have become increasingly disenchanted with the high fees and inconsistent performances among traditional active fund managers. Academic studies have shown that the majority of active managers have failed to beat their benchmarks, which left many investors wondering why they were paying the exorbitant fees in the first place.

“The main driver [of ETF growth]has been the focus on cost. Investors have become increasingly cost sensitive because of low interest rates and the low growth environment. The asset management industry was also charging too much in general,” Hortense Bioy, director of passive strategies at Morningstar, told FT.

New Records Ahead for ETF AUM?

Looking ahead, as the winds continue to favor the ETF industry, many believe the ETF industry could hit new record assets under management ahead. For instance, the consultancy firm EY forecasted assets in ETFs globally could rise to $7.6 trillion by 2020 on increased digital distribution, economic factors and shift towards self-directed retirement savings.