Survey explores how AUM is expected to rise further
ETFs have been one of the rare shining lights in an otherwise bleak last year for the asset management sector. But what does the future of ETFs look like with no sign of economic stability in sight?
It was challenging to top the global $1.2 trillion in net ETF inflows and 28.8% increase in ETF AUM in 2021. Despite a year of economic and geopolitical unrest, ETF inflows in 2022 totalled $779.4 billion, ranking second among all years, with the global ETF AUM reaching $9.2 trillion in December.
Due to their exceptional success, several big asset management companies that had previously avoided the ETF market are now launching new funds and converting their mutual funds and separately managed accounts into ETFs.
PWC Global surveyed three-quarters of executives, mainly managers or sponsors of ETFs. According to the poll, 29% of participants are more positive and predict that worldwide ETF AUM would double to $18 trillion by 2027, while 70% of respondents estimate it to reach $15 trillion or higher. This would indicate a CAGR of 11.77% and 15.92%, respectively.
Despite the record-breaking rise of the ETF sector, asset managers still have a lot of room to help investors. Product innovation, expansion into untapped investor areas, and new markets where ETFs are a relatively new investment product will all be key drivers of this growth.
The ETF sector is seeing potential for a new boom in development due to product innovation and diversity. With 69% of US respondents and at least 60% in the other countries anticipating considerable demand over the next two to three years, fixed income ETFs are projected to continue their robust growth rates.
According to 74% of respondents, demand for active ETFs would rise over the next two to three years. Although net inflows into thematic ETFs have decreased in 2022, over 63% of respondents in each area anticipate considerable demand for these products over the next two to three years. Europe continues to set the standard for ESG investment products, accounting for 21% of global ETF AUM.
ETF managers want to tap investor groups in existing markets as well as draw investors from new areas. ETF managers will be able to contact more investors and obtain crucial data for marketing and product development with the aid of digital distribution channels like robo-advisors and online platforms. They will be able to attract more investors and get important information for marketing and product development as a result.
Model portfolios are a major source of demand for ETFs, according to managers in all areas, with the US leading the pack with over 82% of respondents anticipating strong demand. To increase investor knowledge of the advantages of ETFs, businesses must stay up with the rapidly changing regulatory environment.
One of their two main problems is a lack of investor education, combined with coping with the needs of more stringent regulations. Self-directed investors and ETF savings plans have made Germany and Italy two of Europe's retail adoption marketplaces with the strongest growth rates.
ETF managers in more developed countries anticipate focusing more on unexplored potential in Africa, Latin America, and the Middle East. Despite the fact that investors in each of these locations now use ETFs at relatively modest rates, there is substantial room for development as these markets begin to appreciate the advantages of ETFs.
