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Despite gains, hedge fund assets may be overtaken by ETFs

Mixed-chartAlthough they made positive performance gains in 2013, hedge funds may soon find their collective assets surpassed by the sum invested in exchange-traded funds (ETFs).

A hedge fund index by data firm Eurekahedge rose 8% during last year, bringing total assets in funds tracked by the company to more than $2 trillion (€1.5 trillion).

Another data provider, BarclayHedge, estimates that the total hedge fund assets under management are $2.5 trillion. Yet even this larger sum could soon be exceeded by total ETF assets, according to recent growth trends.

“If current trends continue, 2014 will herald a significant milestone for the ETF and hedge fund industries, as the total amount of capital invested in the former threatens to overtake the latter,” says Tim Edwards, director, index investment strategy, S&P Dow Jones Indices.

Edwards compared data from BarclayHedge dating back to 2000 with estimates of the size of the ETF industry from BlackRock, whose ETF division, iShares, is the largest ETF provider by assets.

Data show that ETF assets have risen rapidly since 2008, while hedge fund assets, according to BarclayHedge's estimates, have yet to regain their pre-financial crisis peak.

The data suggest that if the ETF industry continues to grow at its current pace, it will be significantly larger than the hedge fund industry in only a few years.

BlackRock's sum of total ETF assets is already larger than the Eurekahedge estimate of total hedge fund assets.

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