Exchange-traded funds set a record $351 billion in global flows for 2015, according to a recent PwC report.
The PwC report titled “ETFs: A roadmap to growth” finds that survey participants expect even more ETF growth across North America, Europe and Asia, with global ETF assets expected to exceed $7 trillion by 2021.
The North American ETF market is the primary driver of global growth, accounting for more than two-thirds of global ETF assets, according to PwC.
To determine what key developments will help drive further ETF growth, PwC surveyed executives from approximately 60 firms around the world in 2015, of which 18 were from North America. More than 70% of the participants were ETF managers or sponsors, with the remaining participants divided between asset managers not currently offering ETFs and service providers.
Looking at PwC’s findings for just the North American sector, here are three trends that will have an impact on the ETF industry in the near future:
1. The regulatory environment continues to play a key role in shaping the ETF market.
Recent regulatory changes that impact the ETF industry include Securities and Exchange Commission reforms that addressed the use of derivatives and leverage by ETFs and increased disclosure of liquidity risk management efforts by open-ended funds.
In September 2015, the SEC proposed a series of liquidity rules that could significantly affect ETFs, including requiring them to have a liquidity risk management program.
Meanwhile, the SEC’s proposed derivative rules could impact both existing and proposed ETFs, including limiting the use of derivatives by some leveraged and inverse leveraged exchange-traded products.
Most recently, the Department of Labor’s fiduciary standard rule, released in April, requires any advice provided to an employee benefit plan or an individual retirement account must be in the best interests of the investor.
“The fiduciary standard rule has the potential to further align the interests of financial advisors and investors by shifting away from investments in commission-based products and moving them towards lower cost, fee-based investment products such as ETFs,” PwC states.