Investments 

ETF market expected to double in size in five years

ETF market expected to double in size in five years

The popularity of exchange-traded funds will increase at a rate which could see the market double in five years, according to the majority of advisers interviewed by Source.

A total of 71 UK-based IFAs were asked about their attitudes towards exchange-trade products.

The survey showed most advisers expect the ETF market to account for 6 per cent of global assets under management by 2021.

Currently, the ETF market accounts for $3.1trn (£2.2trn), which is 3 per cent of assets under management held in investment funds globally.

Conducted earlier this month, the survey found 10 per cent of advisers expect assets in ETFs to make up as much as 15 per cent of the total investment fund market in five years, while 6 per cent expected client assets in the tracker funds to fall over the next 12 months.

This comes after Rathbones head of multi-asset investments David Coombs said the “euphoria” around passives will slide as investors see active managers performing better.

But Lee Kranefuss, executive chairman of ETF provider Source, said: “It is clear that ETFs are playing an increasingly central role for financial advisers and their clients, driven by core characteristics such as lower costs and greater liquidity.”

Unsurprisingly, IFAs cited lower costs as the main reason for choosing ETFs, with liquidity, innovation and transparency cited as other big factors pushing them into the passive space.

On average, advisers said index-linked funds account for 9 per cent of their overall assets under management, with a third expecting to increase their ETF allocation.

Despite ETFs often taking a more tactical short-term role in portfolios, a third of IFAs polled expected these vehicles to increasingly be used as long-term investments at the centre of portfolios.

Patrick Connolly, certified financial planner at Chase de Vere, said: “Advisers are using an ever increasing number of passive investments, in preference to active managers and this looks likely to continue.

“While many advisers favour tracker funds over ETFs, the use of ETFs is still likely to increase.

”Just because ETFs allow real-time dealing doesn’t mean they cannot also be held for long-term exposure to different asset classes.”

katherine.denham@ft.com