The factors fuelling ETFs' global asset expansion

A world-renowned ETF titan weighs in on the factors that could propel growth over the next nine years

The factors fuelling ETFs' global asset expansion

US$5 trillion in ETF assets today; US$12 trillion in five years; US$25 trillion in nine.

That’s the forecast that BlackRock came out with in a report released last week. The projection, as bold as it sounds, assumes that the global ETF train will stay on its current track of around 20% asset growth per year since the 2008-2009 financial crisis. According to, BlackRock has seen four key trends accelerate in the past year, and believes that they will continue to push the sector upward.

First, investors are going beyond using ETFs merely to own the broad market, and are starting to use the funds when making active decisions in their portfolios. According to Martin Small, head of iShares at BlackRock, “the lion’s share of ETF investors’ money is going to overweights and underweights [active tilts] relative to a single-market portfolio.” Aside from that, a trend away from individual selection and toward asset allocation is creating a growth opportunity for ETFs.

Next, there’s investors’ increasing cost-awareness, particularly since the financial crisis. The report said that the fund fees investors paid in 2017 were lower than ever before, with average index fund fees dropping more than 35% in five years to average 0.18%. Active fund fees, meanwhile, averaged 0.77%, compared to 0.86% five years beforehand.

Advisors’ increasing tendency toward asset-based fee models instead of commissions has also benefited ETFs, as more are pushed toward lower-cost investment vehicles. Assets in US fee-based accounts have reportedly quadrupled since 2005, said BlackRock, and could double again by 2020.

“Last year, almost 80% of our flows came from retail and asset allocation portfolios in the land of financial advisors, which is unusually high,” Small said. “In 2014, only about 30% of U.S. investors had some kind of relationship for financial advice that wasn’t based on commissions. Today nearly half of people who have money in the market have fee-based advice.”

Finally, the report said the bond liquidity traditionally expected by institutions has “evaporated.” With ETFs, investors can overcome challenges of liquidity as well as access.

“Bonds don’t trade on exchanges like stocks,” Small noted. “You have to get a quotation from somebody, the market is less transparent, it’s hard to comparison shop, [and] it requires several calls … Most investors who haven’t built big-scale bond trading platforms don’t have a great way to access this market other than the bond ETF.”

Small predicted that the ETF industry’s growth is inevitable; should there be a significant market pullback that causes investors to take out their money, the changes would just happen “a little slower.”


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