Investors also exhibit sensitivity to cost and demand quality. All types of investors know that costs can have a significant impact on long-term returns. Consequently, lower-cost, diversified ETFs are increasingly being used by self-directed retail investors and sophisticated institutions.

The transformation in the business model for financial advice is taking shape as well. Investors are increasingly paying a fee on assets, instead of an indirect fee via brokerage commissions and retrocessions. The transition to fee-based advisory models highlights costs and lowering costs for simple asset allocation, which could favor low-cost ETFs.

Lastly, an evolution in the way bonds trade favors ETFs for efficient market access, according to BlackRock. Bond liquidity is dissipating. To facilitate large transactions among institutional-sized investors, more are increasingly likely to use bond ETFs alongside or instead of single securities, relying on the secondary markets through ETFs over direct exposure through the notoriously illiquid primary markets.

For more information on the ETF industry, visit our ETF performance reports category.