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ETFs Surge Past Hedge Funds in Assets

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The global exchange-traded funds and products industry, celebrating its 27th anniversary this month, can do a bit of chest thumping: The sector has grown faster than the global hedge fund industry, now it its 68th year.

ETFGI, a research and consultancy firm, reported this week that assets invested in the global ETF/ETP industry at the end of 2016 were $530 billion larger than those invested in the global hedge fund industry.

After steadily gaining on the assets invested in hedge funds, notably since the end of the financial crisis, ETF/ETP assets grabbed the lead in the second quarter of 2015, ending that year just short of $3 trillion. 

ETFGI’s analysis shows a record $3.548 trillion invested in the 6,630 globally listed ETFs/ETPs at the end of 2016, while assets in the global hedge fund industry hit a new record high of $3.018 trillion invested in 8,326 funds at year-end, citing a new Hedge Fund Research report.

ETFGI said many investors had become disaffected by hedge funds’ high fees, performance and lack of liquidity in recent years. 

It noted that in 2016, the performance of the HFRI Fund Weighted Composite Index was 5.5%, compared with the 11.9% return of the S&P 500 index. 

In each of the past six years the performance of the HFRI index was significantly lower than the return of the S&P 500 Index:

  • 2011: HFRI, -5.25%; S&P, 2.09%
  • 2012: HFRI, 6.36%; S&P, 15.99%
  • 2013: HFRI, 9.13%; S&P, 32.36%
  • 2014: HFRI, 2.98%; S&P, 13.65%
  • 2015: HFRI, -1.12%; S&P, 1.38%

During 2016, ETFs/ETPs listed globally gathered a record $389 billion of net inflows, surpassing the 2015 record inflow of $372 billion, according to ETFGI. Citing HFR, it said that during 2016, hedge fund investors redeemed $70 billion, the largest annual outflow since 2009, when $131 billion was withdrawn. Investors took back some $19 billion in the fourth quarter.

The pressure on hedge funds is unlikely to let up. A recent report suggests investor redemptions will be a key theme in the sector this year.

— Check out 5 Ways ‘Passive’ Investing Is Actually Quite Active on ThinkAdvisor.


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