Assets under management in global ETFs could double or even triple by the end of 2015, from today’s $1.5 trillion to between $3.1 trillion and $4.7 trillion, according to a new report from McKinsey & Co.
The report adds that such growth will continue a trend in which ETFs outpaced other segments of the asset management industry, racking up AUM increases of more than 30% per year compared with 5% to 6% for U.S. mutual funds between 2000 and 2010. In the process, ETFs will continue to make changes in the marketplace which they began over a decade ago.
The report, released Tuesday and titled “The Second Act Begins for ETFs: A Disruptive Investment Vehicle Vies for Center Stage in Asset Management,” details ways in which ETFs have changed the asset management industry, including:
- Expansion of investor access;
- Allowing monetization of advice by advisors;
- Providing a superior product design to passive mutual funds.
Citing the double-digit growth rate of ETFs compared with mutual funds, the report also says the ETF competitive landscape is in the midst of its own dramatic changes, as passive ETFs may have saturated the market and there is more competition on price. “ETFs are now a hotbed of competition,” the report says, “with an expanding and aggressive array of competitors.”
Despite the challenges ETFs face in a shifting marketplace, the report says the growth outlook for global ETFs is strong, thanks to increasing investor awareness, a strong focus on the cost of investments, transparency requirements by regulatory bodies and the growth of fee-based advice.
That said, the ETF arena will face four challenges in the years ahead, according to the report: stronger competition for passive investments; active ETF growth; market globalization; and new competitive models.