A new global survey by EY has laid out the dominance of passive investment strategies – and ETFs in particular.
The research, EY's fifth annual global study of ETFs, interviewed 70 product providers, market makers and services providers who manage 85 per cent of global ETF assets.
EY noted the staggering growth of ETFs, which totaled just US$417 billion in 2005 and reached US$4.4 trillion by 30 September 2017 – a cumulative average growth rate (CAGR) of around 21 per cent.
Assuming a slightly more conservative growth rate (a CAGR of approximately 18 per cent), ETF assets have the potential to hit US$7.6 trillion within three years, the report said.
Most importantly for fund managers, EY predicted that within five years "almost all" asset managers will offer passive or active ETFs.
"Two-thirds of our respondents expect most asset managers to offer ETFs in the future," said the report.
"This reflects a variety of strategic goals, including competing in the ETF space; defending against the “hollowing out” of mutual funds; and tapping into digital distribution. Many new entrants will focus on areas such as fixed income or smart beta."
The challenge for the ETF providers of the future, said EY, will be to develop "the right products, for the right investors, at the right time".
"The industry remains as creative as ever, and we expect this to continue. But we also see the potential for excessive cost build-up, and possibilities for investor disappointment," said the report.
Product development must anticipate investor needs, keep the 'big picture' in mind, look beyond the short term and focus on education, said EY.
