Managers will launch ETFs to protect fund outflows, says EY

ETFsInvestors who are new to ETFs will plough in billions of dollars to these funds in the next three years and more firms will offer them, many industry professionals believe.

EY, the business consultancy, predicted that new investors would be responsible for 15%-25% – some $250 billion (€213 billion) – of inflows to ETFs over the next three years.

The firm also found that many in the ETF industry expect more asset managers to launch ETF products in the next half a decade.

Over two-thirds of 70 ETF professionals internationally expected asset managers to have an ETF offering in the next five years, joining an expected $7.6 trillion global market by 2020.

The report forecasts that ETF offerings would help new entrants defend against declining mutual fund inflows, though for many, ETFs would only form a part of their product range.

Lisa Kealy, a regional ETF leader at EY, said asset managers would need to be more innovative in the ETF field.

“ETFs can no longer just be cheaper or more liquid than actively managed mutual funds. The industry will need to innovate around investors, refine investor journeys and reduce investor costs to remain competitive.”

It is expected that ETF fees will continue to fall, reaching on average 27 basis points last year. While the report contends that “zero-fee” ETFs will not become the norm, a majority of interviewees expected fees to fall further as becoming a low-cost provider becomes a prerequisite to survival.

Nearly all respondents to the EY survey for its ‘Global ETF Research 2017’ predicted that institutional investors will continue to dominate ETF investing over the next three years. Pension funds are expected to use ETFs for liquidity management while wealth managers are expected to use them for core exposures in model portfolios.

Also, certain hedge funds will use leveraged and inverse ETFs to execute high-conviction long or short positions.

Some 2.9% of inflows now go to funds with assets under management below $100 million and over half of respondents said they did not believe the success ratio of new launches would improve in the future.

©2017 funds europe