Exchange-traded funds (ETFs) will pay a prominent role in the growth of financial investments globally.
A PwC report, which surveyed executives from 60 ETF sponsors, asset managers and service providers around the world, reveals that more than three out of four expect ETF assets to at least double, to reach US$5 trillion or more by 2020.
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Asset flows in the developed markets of the U.S. and Europe will continue to dominate the ETF landscape. However, the highest rates of growth will be found in the less mature markets.
Institutional investors are widely expected to be the primary growth driver with insurance companies, pension plans and hedge funds in particular, projected to be significant sources of demand for ETFs.
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New types of indexing (also referred to as smart beta) represent a hotbed of product development activity with 46% of firms identifying this as the most important area of innovation. PwC expects this to continue for the near term. Active ETFs (34%) and alternatives (29%) are also expected to be sources of significant ETF growth between now and 2020.
“Despite myriad challenges, opportunities abound for existing ETF sponsors as well as other asset managers willing to develop a thoughtful and informed strategy as they prepare to address this market,” says PwC’s ETF practice leader, Bill Donahue. “However, as more types of investment strategies become operationally feasible and are permitted by regulators, firms will need to develop and retain deep expertise, differentiated products, investor education and effective distribution channels to achieve success with their ETF offerings.”
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