Global ETF assets under management set to exceed US$7 trillion by 2021 – PwC report

Asian market expected to grow 18% per year over next 5 years

Hong Kong, 28 Jul 2016

- PwC expects accelerated growth in Exchange Traded Funds (ETFs) over the next five years, with global assets under management (AUM) expected to exceed US$7 trillion by 2021. A new report, ETFs: A roadmap to growth, predicts the market will achieve further significant growth through entering new markets, as well as expanding distribution channels and asset classes.

Many ETF providers are expected to expand their global footprint and offer ETF products across borders to compete outside their domestic markets. PwC believes that, to be successful, firms will need to develop an understanding of local and global tax laws and regulations.

Asia is currently the smallest regional market for ETFs - behind North America and Europe. However, it appears poised for growth, particularly as markets become more integrated and regulations are further enhanced and streamlined to facilitate not only innovative products but also access to ETFs.

  • Asian firms expect ETF AUM in Asia to reach US$560 billion by 2021 – an 18% annual growth rate over the next five years. Among them, Hong Kong survey participants expect a similar annual growth rate of 17% over the next 5 years;
  • The North American ETF market is expected to grow to US$5.9 trillion by 2021 (a 23% cumulative annual growth);
  • The European market is expected to grow 27% annually – reaching US$1.6trillion AUM by 2021.

“The global ETF market has a bright future ahead, but the next few years will not be without their challenges,” says Maria Tsui, Asia ETF leader with PwC Hong Kong. “The market is increasingly crowded, particularly in North America and Europe. Many firms are looking to expand their global footprint, which presents opportunities as well as challenges with respect to regulations, tax laws and establishing relationships with distribution partners.”

“Firms across the globe that wish to take advantage of the booming ETF industry will need to promote investor education, establish strong distribution channels and differentiate their products.”

“Similarly for Asia, new and improved distribution channels, better investor education and further enhanced cross-border schemes are also seen as potential growth accelerators in the Asian ETF market,” says Ms Tsui.

Advances in technology and data analytics are expected to be significant contributors to the growth of ETF markets by encouraging new product creation and evolution in distribution channels. Digital technology and ‘big data’ will continue to enable successful firms to improve decision making processes, streamline costs and transform investor relationships.

Insurance companies are forecast to be among the main drivers of demand in Asia, whereas demand from retail investors is expected to be relatively low. Globally, by contrast, financial advisors, online platforms and retail investors are expected to be the top three segments driving ETF growth, mainly in North America and Europe. Online platforms have overtaken wealth management platforms in the top three global distribution trends.

  • Asian firms forecast stronger growth opportunities from domestic equity ETFs and commodity ETFs than other regions;
  • Increased regulations are seen as a major obstacle to growth by almost half (47%) of the survey’s respondents;
  • The strength of a corporate brand was listed as the most important factor in raising assets under management, with 60% seeing it as very important;
  • Investment track record and a differentiated investment strategy were also noted to be very important factors for future growth.

It is somewhat surprising that only 35% of survey participants believe that lower costs are a potential differentiator in these increasingly crowded ETF markets, as PwC continues to observe downward fee trends, particularly with passively managed ETFs.

“Given the momentum and speed at which the ETF industry is developing, it is not surprising to see regulators across the globe focusing on investor protection,” says Ms Tsui. “Regulatory developments will continue to be top of mind for those looking to expand in the ETF market, although not all regulations will be an obstacle – some initiatives that promote fee transparency and low commissions may cultivate further ETF growth.”

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