Assets under management of global exchange-traded funds have edged up 9.7 percent since the start of 2014, new research shows.
According to the October issue of the “Cerulli Edge—Global Edition,” published by Cerulli Associates, assets under management (AUM) of ETFs hit $2.55 trillion at the close of the second quarter of 2014. That compares with $2.3 trillion at year-end 2013.
AUM of global exchange-traded funds has been on an upward trajectory over the past four years. At year-end 2010, assets under management totaled $1.41 trillion. Since then, AUM has risen to $1.47 trillion in 2011 and $1.88 trillion at year-end 2012.
“In a little over 20 years, ETFs have become one of the most popular investment vehicles for both institutional and individual investors, amassing more than $2.5 trillion (€1.94 trillion) in assets worldwide,” the report states. “The reasons for their popularity are easy to understand. ETFs [provide] a tax-efficient way of offering low-cost diversification, trading, and arbitrage options.
“As is often the case, the United States leads the way,” the report adds. “Assets under management (AUM) of US$1.8 trillion are more than three times that of Europe, and growing at a faster rate.”
Highlights of the report in respecting to the U.S. market include the following:
- Institutional use of the investment vehicles is concentrated among the largest ETFs and, thus, the three largest ETF sponsors: Blackrock, State Street and Vanguard.
- ETF providers are chiefly marketing their products to ETF strategists and mutual fund managers who provide guidance to financial advisors on the ETF component of portfolios for retail clients.
- Most ETF providers identify insurance general accounts as a secondary target market for their products. Insurers find the products attractive because they offer risk-adjusted returns.
- Fixed income ETFs also appeal to insurers because the National Association of Insurance Commissioners (NAIC) now allows the products to be reported in the companies’ financial statements as bonds.
- Many insurers are not “operationally equipped to oversee ETFs” to gauge the risk exposure of the underlying securities.