ETFs' Future: Huge Growth

February 04, 2014

In the beginning of this period, when we looked at surveys of advisor use, it showed usage in the low teens on a percentage basis. At the end of this period, that number was closer to 50 percent.

This phase also saw more sophisticated individual investors using ETFs, and frankly that’s where things got a little wonky. We saw the rise of more complex ETFs, like leveraged and commodities products, and we had some scary headlines. Folks like FINRA had to step in and start issuing new guidance. But this was really the beginning of broad ETF adoption.

ETP Asset Growth

And this is the last few years. Bolstered by marketing budgets, rising markets and the continued failure of actively managed mutual funds to deliver, ETFs started to actually crack the code with the doubters. New transaction fee programs start making things more accessible for retail investors. We saw broker-dealers and RIA shops that had previously shunned ETFs started getting on board.

Suddenly, this was not just a trader’s tool or a niche product for advisors. Suddenly, we had all three guests at the table: the institutional investor; the advisor; and the retail investor.

Where does that take us for the next leg of the ETF revolution? A simple linear projection of the last few years would suggest an ETF market of more than $5 trillion within 10 years.

Honestly, we think that’s sandbagging the real growth. We believe ETF assets will eclipse mutual fund assets within 10 years. Simply doing that, with some modest expectations about global market growth, puts ETF assets at more than $15 trillion by 2024.

ETP Asset Growth

We don’t expect anyone to take this prediction at face value. It’s a big number. But we think there are significant trends in place that, taken together, more than justify this prediction.

Previously, ETFs only made sense for a portion of the investing market. But we now think that ETFs have developed to the point where their five key benefits apply across the spectrum to institutions, advisors and individual investors alike. This is the first time that’s ever been the case, and it’s an absolute game changer.

Taken together, the penetration into all three groups will drive ETFs to be larger than mutual funds within 10 years.


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