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Portfolio > Asset Managers

Exchange-Traded Assets Edge Past Hedge Fund Assets in Q2

By Michael S. Fischer

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Twenty-five years after emerging on the investment horizon, exchange-traded funds and products hit a milestone in June, surpassing assets invested in hedge funds for the first time, according to ETFGI, an independent research and consultancy firm.

ETFGI’s analysis showed that $2.971 trillion was invested in 5,823 globally listed ETFs/ETPs at the end of second quarter, while $2.969 trillion was invested in 8,497 hedge funds, based on data supplied by Hedge Fund Research.

ETF and ETP assets at the end of June were down slightly from their record high of $3.02 trillion reached in May.

Net inflows into ETFs and ETPs have been significantly higher than net inflows into hedge funds over the past few years, according to the report.

In the first half of 2015, a net $39.7 billion flowed into hedge fund coffers globally, compared with net inflows of $152.3 billion into ETFs and ETPs globally over the same period.

Last year, ETFs and ETPs had net inflows of $339.7 billion, while net flows into hedge funds amounted to $76.4 billion.

ETFGI said a lot of investors had been disappointed by recent hedge fund performance.

A comparison of the HFRI Fund Weighted Composite Index vs. the S&P 500 Index showed the following:

  • 2011—HFRI: -5.3% vs. S&P 500 Index: 2.1%
  • 2012—HFRI: 6.4% vs. S&P: 16%
  • 2013—HFRI: 9.1% vs. S&P: 32.4%
  • 2014—HFRI: 3.3% vs. S&P: 13.7%

In the first quarter this year, the HFRI index was up 2.3%, while the S&P was up 1%.

According to ETFGI, investors have largely been happy with index returns and fees, given the positive performance of equity markets, and ETFs and ETPs have benefited.

The ETF structure, it noted, offers intraday liquidity, transparency, small minimum investment sizes and costs lower than many other investment products.

The firm’s research showed that the asset-weighted average annual cost for ETFs and ETPs was 31 basis points, compared with 2% of assets and 20% of profits charged by many hedge funds. Most ETFs, particlularly in equities, are passively managed. But that is slowly changing as regulators approve new fund structures.

— Check out Global Alternative Assets Jumped to $6.3 Trillion in 2014 on ThinkAdvisor.

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