ETF/ETP industry to pass $2 trillion in 2012

Global assets under management in exchange-traded funds (ETFs) will pass US$2 trillion by the end of 2012, while combined ETF and exchange-traded products (ETPs) assets will hit US$2 trillion in the next 12 months, according to BlackRock.

This expansion would be driven by increases in the number and types of equity, fixed income, commodities and other indices covered, according to BlackRock’s global head of ETF research and implementation strategy Deborah Fuhr.

An increase in fund platforms embracing ETFs, increased marketing by online brokers, greater involvement by fee-based advisers, more exchanges adopting ETFs, and regulatory changes in several markets allowing larger allocations to ETFs would also boost the industry, Fuhr said.

BlackRock’s Global ETF research and implementation strategy team predicted a 20-30 per cent annual increase over the next three years in the global ETF/ETP industry, which at 31 December 2010 had 3,503 products and US$1.482 trillion from 168 providers on 50 exchanges around the world.

Many investors turned to ETFs after the global financial crisis due to a desire for liquidity and a shift in risk appetite, Fuhr said.

And despite growth in alternative asset class ETFs, investors will continue to prefer ETFs based on broad-market indices that serve as core holdings, she said.

“With today’s increased market volatility, no single sector, style, or stock consistently outperforms its peers. Having core holdings invested in broad-market indices not only helps reduce volatility but can also achieve competitive returns for the overall portfolio.”

ETFs have changed the way both institutional and retail investors construct investment portfolios, and ETFs would likely continue to be one of the preferred investment vehicles for low-cost beta exposure across both retail and institutional markets, Fuhr said.