Exchange-traded funds (ETFs) are set to exceed $5 trillion in assets by 2020, according to a report from consultancy PwC.
PwC said that greater use of ETFs by institutional investors is a primary global growth driver, with pension funds, insurance companies and hedge funds all expected to increase their demand for ETFs. ETF growth is expected to be high in the less mature investment markets of Asia, Latin America, the Middle East and Africa. PwC predicted that alternative indexation products, also known as smart beta, will be an important source of ETF product development, with 46% of firms surveyed citing this as an area of innovation. Active ETFs (34%) and alternatives (29%) are also expected to be important growth areas for ETFs.
A separate ETF report from Greenwich Associates found that institutional investors already use ETFs for a wide range of purposes. Based on a survey of 120 European institutions, including 68 pension funds, Greenwich Associates found that pension funds are more likely to be strategic users of ETFs, with many funds using ETFs to achieve international diversification, with 88% of pension funds that used ETFs using them for international equities. The report found that for pension funds, cost is the top consideration when choosing an ETF, whereas for insurers, liquidity is the most important factor.