Exchange-traded fund market set to nearly double by 2020

S t r o n g g r o w t h i n Exchange-Traded Fund (ETF) assets i s e x p e c t e d t o continue with Assets Under Management (AuM) on track to reach $6trillion in value by 2020. According to EY Global ETF Survey 2016 “Integrated innovation: The key to sustainable growth”, t h i s p re d i c t e d g ro w t h follows a decade of growth in the industry, averaging 21.5% per annum and with AuM valued at $3.4trillion as of August 2016. As the industry grows, however, it is becoming p r o g r e s s i v e l y m o r e difficult for firms to deliver continued expansion. The report identifies product development, market entry and digital disruption as par ticularly imp or tant spaces to apply an integrated approach to innovation in order to achieve sustainable growth in the industry. Lisa Kealy, EY EMEIA ETF leader said: “The ETF industry is expanding; with competition intensifying as new providers enter the market. Pressure to invest in technology and compliance is making the ability to achieve scale increasingly d i f f i c u l t . I n t e g r a t i n g innovation throughout the business to address these challenges is crucial to ensuring that providers can meet an ever-growing range of customer needs and attract an ever-wider range of investors.” Product development c o n t i n u e s t o g r o w i n Exchange-traded fund market set to nearly double by 2020 importance in the ETF industry and yet the majority (64%) of providers expect new products to become less successful in the future. The contradiction stems from the fact that product supply is reaching a saturation point. The growth of more complex ETFs is making it more difficult for promoters to test new products — especially when the focus remains on speed to market rather than building a tailored approach to innovation. The rapid growth of ETF assets continues to attract new entrants to the industry. Ninety percent of survey respondents expect more new players to enter the market and, in the US, the figure is 100%. Respondents identified active managers (22%) and asset managers with no current ETF offering (20%) as the type of promoters likely to enter the market in the next two years. Geographically, Asia-Pacific remains the most popular target, particularly among US respondents, but also for European and AsiaPacific promoters with 41% of respondents planning expansion in this market. Julie Kerr, EY AsiaPacific ETF Leader, said: “Market entrants — whether established ETF issuers or industry newcomers — need to overcome a lack of scale, distribution and branding in any new market. We’re seeing providers pursue innovative options to confront these challenges, from collaborating, sub-advising or using existing ETF platforms.”