ETF market “reaching saturation point”

The ETF market is “reaching saturation point” and the failure risk of new vehicles has never been higher, data indicates.

Consultancy EY’s Global ETF Survey 2016, which gauged the opinions of 70 leading providers and investors who account for 86% of ETF assets worldwide, shows 64% expected the failure rate of ETFs to worsen considerably.

Despite this, respondents see bright days ahead for ETFs, with the majority predicting assets under management will grow from over $3 trillion (€2.72 trillion) worldwide to $6 trillion by 2020, and European ETF assets will double during the same period, from over €500 billion to over €1 trillion.

However, many expected product development and launches to grow increasingly problematic. Almost a fifth of those polled (17%) said they felt pressured to be first to market with innovative offerings.

Elsewhere, the report noted that the growth of increasingly complex ETFs, such as multi-factor smart beta, made it harder for firms to test and seed new products before launch. Moreover, regulatory approval for new products is also becoming harder to acquire in many markets.

The survey also found institutional investors used ETFs for a wide range of uses, including gaining exposures to asset classes they wouldn’t be able to access directly, and as a more liquid replacement for credit default swaps. Furthermore, it found that institutions were using leveraged and inverse ETFs to anticipate or react quickly to market movements.

©2016 funds europe

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