The global ETP industry is on a roll, and U.S. assets could hit $2 trillion by 2013.
Assets in exchange-traded products are on track to increase 20 to 30 percent a year around the world over the next three years, and could hit $2 trillion in the U.S. by late 2013, according to BlackRock, parent of the world's largest ETF firm, iShares.
Globally, ETP assets could reach $2 trillion by early 2012, the New York-based money management firm said in a report released this week. It said 3,503 products from 168 providers were trading on 50 exchanges around the world at the end of 2010. Assets totaled $1.482 trillion compared with $1.156 trillion in 2009.
"The industry grew across the board during 2010. We expect this to continue in 2011," Deborah Fuhr, global head of ETF research at BlackRock, said in the study, noting that ETPs are now widespread enough to be used to gauge investor sentiment.
Factors driving the expansion include the growing number and types of indexes covered; more active marketing of ETFs by online brokers; greater involvement by fee-based advisors; and the growing number of exchanges planning to launch new ETF trading segments, Fuhr said. She also cited regulatory changes in the U.S., Europe and emerging markets that allow funds to make larger allocations to ETFs.
Last year, total assets in U.S. ETPs topped the $1 trillion mark for the first time, and investors are starting to look to ETFs to gauge market sentiment, Fuhr said. While most of those assets are in ETFs, the total ETP tally includes other structures, such as trusts, partnerships, commodity pools and notes.
"ETFs have fundamentally changed the way both institutional and retail investors construct investment portfolios. We expect ETFs to continue to be one of the preferred investment vehicles for low cost beta exposure across both retail and institutional markets," Fuhr added.
In the study and in an interview with IndexUniverse.com, Fuhr has said that making sure investors understand the differences between different types of ETPs is becoming crucial as the exchange-traded product industry expands, and as the growing array of products influence the way investment portfolios are constructed.
That need for education was laid bare last year by two high-profile critiques of ETFs—one by a Boston money management firm and the other from the Kauffman Foundation—that betrayed basic misunderstandings of how exchange-traded products are constructed and function.
Many ETF industry sources characterized the two reports as a backlash against ETFs that was probably triggered by the so-called “flash crash” of May 6, 2010. A sudden liquidity crisis caused steep intraday drops in the major U.S. stock market indexes, and ETFs were among the hardest-hit securities.
The episode inspired the Securities and Exchange Commission and the Commodity Futures Trading Commission to embark on a new round of rule-making designed to prevent a repeat of the events of May 6. Their efforts include proposed price collars for all U.S.-traded ETPs and position limits for futures-based commodity ETPs.