Global ETFs/ETPs Industry Leads Global Hedge Fund Industry By $1 Trillion For The First Time

Aug. 07, 2017 9:21 AM ET
Deborah Fuhr profile picture
Deborah Fuhr
119 Followers

Summary

  • Global ETF/ETP industry was $1.07 trillion larger than the global hedge fund industry at the end of Q2 2017.
  • Assets invested in ETFs/ETPs globally were $4.17 trillion at the end of Q2 2017 vs. $3.10 trillion invested in hedge funds.
  • Assets invested in the global ETF/ETP industry first surpassed those invested in hedge funds in Q2 2015, and in two years the difference in assets has grown to exceed $1.

All dollar values are in U.S. dollars unless otherwise noted.

ETFGI, a leading independent research and consultancy firm on trends in the global ETF/ETP ecosystem, reports today that the global ETF/ETP industry was $1.07 trillion larger than the global hedge fund industry at the end of Q2 2017. Assets invested in ETFs/ETPs globally were $4.17 trillion at the end of Q2 2017 vs. $3.10 trillion invested in hedge funds. Assets invested in the global ETF/ETP industry first surpassed those invested in hedge funds in Q2 2015, and in two years the difference in assets has grown to exceed $1 trillion for the first time.

Global ETF/ETP and hedge fund growth, as at end of June 2017


Sources: ETFGI and Hedge Fund Research.

This milestone is the outcome of rapid growth in the ETF/ETP industry since the 2008 financial crisis, with a Compound Annual Growth Rate (OTC:CAGR) in assets over the 8 years to end 2016 of 21.0%, more than twice that for the global hedge fund industry, with a CAGR of 9.5%. In recent years growth in assets in hedge funds has slowed, to 4.2% in 2016 and 2.7% for 2017 Year To Date (YTD), whilst growth in assets in ETFs/ETPs has remained strong at 18.5% in 2016 and 17.5% for 2017 YTD.

ETFGI’s analysis of flows in Net New Assets (NNAs), shows investors increasing preference to allocate to ETFs/ETPs over hedge funds. Net inflows to ETFs/ETPs listed globally grew annually from 2010 to a record $390.4 billion in 2016, and half-way through 2017 this trend looks set to continue with $347.7 billion in NNAs YTD. In contrast net inflows to hedge funds remained largely unchanged around an annual average of $57.4 billion for 2010 to 2015, and in 2016 hedge funds suffered net outflows of $70.1 billion. YTD 2017 hedge funds globally have gathered $1.2 billion in inflows.

Net New Asset (NNA) flows into ETFs/ETPs and hedge funds globally, as at end of June 2017

Sources: ETFGI and Hedge Fund Research.

The movement of assets towards ETFs/ETPs and away from hedge funds reflects hedge funds’ poorer than expected returns in comparison to passive investing. For example, the S&P 500 Index has significantly outperformed the HFRI Fund Weighted Composite Index every year since 2011, and Q2 2017 has been no exception with returns of 3.09% and 1.10%, respectively.

Returns of the HFRI Fund Weighted Composite Index and the S&P 500 Index

Year

HFRI Fund Weighted

Composite Index

S&P 500

Index w/ dividends

2011

-5.25%

2.09%

2012

6.36%

15.99%

2013

9.13%

32.36%

2014

2.98%

13.65%

2015

-1.12%

1.38%

2016

5.44%

11.93%

Q1-17

2.51%

6.06%

Q2-17

1.10%

3.09%


Sources: Hedge Fund Research, S&P Dow Jones Indices.

The ETF structure offers intraday liquidity, transparency, small minimum investment sizes and at costs that are lower than many other investment products, including futures in many cases. According to our research the asset-weighted average annual cost for ETFs/ETPs is 27 basis points or less than one third of a percent, while fees charged by the majority of hedge funds are 2% of assets and 20% of profits.

This situation has benefited the ETF/ETP industry which offers an enormous toolbox of index exposures to various markets and asset classes, including hedge fund indices, listed real estate, infrastructure, private equity, smart beta indices, fixed income and commodities as well as some actively managed ETFs.

Attribution Policy: The information contained herein is proprietary. The media is welcome to use our information and ideas, provided that the following sourcing is included: ETFGI is a leading independent research and consultancy firm on trends in the global ETF/ETP ecosystem, based in London, England. Deborah Fuhr, Managing Partner, co-founder, ETFGI website.

The information provided: (1) is proprietary to ETFGI and/or its data providers; (2) may not be copied or distributed; and (3) is not warranted to be accurate, complete, or timely. Neither ETFGI nor its data providers are responsible for any damages or losses arising from any use of this information.

This article was written by

Deborah Fuhr profile picture
119 Followers
Deborah Fuhr is the managing partner and co-founder of ETFGI, an independent research and consultancy firm launched in 2012 in London offers a number of subscription services.Previously, she served as global head of ETF research and implementation strategy and as a managing director at BlackRock/Barclays Global Investors from 2008 – 2011. Fuhr also worked as a managing director and head of the investment strategy team at Morgan Stanley in London from 1997 – 2008, and as an associate at Greenwich Associates. Deborah Fuhr was named Recipient of 100 Women in Finance’s 2017 European Industry Leadership Award. Ms Fuhr was the recipient of the 2014 William F. Sharpe Lifetime Achievement Award for outstanding and lasting contributions to the field of index investing, the Nate Most Greatest Contributor to the ETF industry award at the 11th annual ExchangeTradedFunds.com awards dinner in 2015, the ETF.com Lifetime achievement award in 2015. She has been named as one of the “100 Most Influential Women in Finance” by Financial News over several years, most recently in 2016, and as one of the “10 to Watch in 2014” by Rep. magazine and wealthmanagement.com. Ms Fuhr won the award for the Greatest Overall Contribution to the development of the Global ETF industry in the ExchangeTradedFunds.com survey in 2011 and 2008 and received an award for her contribution to the ETF sector at the annual closed end funds and ETF event in New York and was featured in the Investors Chronicle’s list of “150 people that can make you money” in 2010. Ms Fuhr frequently writes articles for various publications including: Financial News, ETFI Asia, CityWire, FT Advisor, Pensions and Investments, IPE: Investments and Pensions Europe, Focus -World Federation of Exchanges and the Financial Times. Ms Fuhr is one of the founders and on the board of Women in ETFs, one of the founders and on the board of Women in ETFs EMEA chapter, is on the board of Cancer Research UK’s ‘Women of Influence’ initiative to support female scientists. Ms. Fuhr is on the editorial board of the Journal of Indexes (United States), Journal of Indexes (Europe), and Money Management Executive; the advisory board for the Journal of Index Investing; and the investment panel of experts for Portfolio Adviser, the FTSE ICB Advisory Committee, the International Advisory Committee for the Egyptian Exchange, and the University of Connecticut School of Business International Advisory Board. She holds a BS degree from the University of Connecticut and an MBA from the Kellogg School of Management at Northwestern University.
Follow

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

To ensure this doesn’t happen in the future, please enable Javascript and cookies in your browser.
Is this happening to you frequently? Please report it on our feedback forum.
If you have an ad-blocker enabled you may be blocked from proceeding. Please disable your ad-blocker and refresh.