Exchange-traded fund (ETF) businesses expect to grow by approximately 18 per cent for the next three to five years, according to a new report by Ernst & Young (EY).
The EY report, entitled ETFs: a positive force for disruption, found that ETF businesses will likely grow by 18 per cent for the next three to five years, with new product development also on the rise.
EY Oceania wealth and asset management leader Antoinette Elias said: “The ETF industry has an ability to turn investment problems into investment opportunities, so seeing this level of confidence in spite of current economic headlines is not surprising.”
The report found that 90 per cent of promoters, investors, market makers and service providers surveyed expect the industry to see positive net new business over the next 18 months. Further, 34 per cent predict net inflows of more than 20 per cent.
Ms Elias pointed out that the US continues to lead the market when it comes to ETF growth, now managing more than US$1.905 trillion in assets.
“Closer to home, Australian ETFs are likely to increase in both number and size,” she said.
In terms of Asian ETFs, Ms Elias said most respondents expect Asian-based ETF businesses to grow by 25 per cent to 30 per cent per year over the next three to five years. This is despite of a decline in Asian ETF assets during the first eight months of 2015, she said.
The report also observed an increase in new product spending. The report said providers are developing new ideas around single emerging market ETFs, infrastructure ETFs and socially responsible ETFs.
“Investor demands are shaping the majority of ETF innovation, but some investors believe promoters may still place too much emphasis on higher margin products,” Ms Elias said.
“Product innovation is a long-term driver of growth and profitability, but the industry should ensure that they listen to investor needs to continue to deliver value.”
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