Global ETF Assets Could Top $11T by 2027

Bond and actively managed funds are expected to propel future growth, according to a survey by PwC.

Financial professionals expect the growth of bond and actively managed exchange-traded funds to propel assets into the industry through 2027, according to research by PwC. 

The survey asked more than 70 executives around the world about expectations for the industry over the next five years and found respondents were broadly bullish.  

In the U.S., where approximately 70% of global ETF assets are located, almost three in four respondents expected domestic ETF assets to hit $11 trillion by June 2027. Two in 10 expect assets to break $15 trillion, according to the report called “ETFs 2027: A world of new possibilities.”  

While those numbers may seem lofty, the durable growth in ETF inflows last year—even in a turbulent market—shows there’s some basis to that belief. The projection would require a five-year 12.8% compound annual growth rate. While that is certainly high, the five-year CAGR through June 2022 was 13.4%.  

Large majorities of respondents in the other three regions expected double-digit asset growth as well. 

The respondents were market makers, financial service providers and asset managers, and more than three-fourths of them sponsored or managed ETFs. Overall, 38% of the firms were from the U.S., 25% from Europe, 22% from Canada and 15% from the Asia-Pacific region.   

Another reason to think that level of growth may be achievable is that global ETF assets saw nearly $800 billion in inflows in 2022, with $600 billion of that in the U.S. This is down from the record $1.3 trillion global inflows in 2021. 

To be sure, the market is in a much different place than it was in 2021, as stocks, measured by either the global MSCI All Country World Index or the U.S. S&P 500 index, dropped by nearly 20% in 2022 against a background of rapidly rising interest rates. For comparison, traditional mutual funds saw $1.4 trillion in outflows in 2022. 

One area of particular growth has been fixed income ETFs, which made up 32% of all global inflows in 2022, up from 23% the year before. Fixed income ETFs have been growing substantially faster than ETFs broadly, nearly doubling in the last four years. Respondents do expect this trend to continue with 69% of U.S. survey respondents expecting “significant demand” for fixed income ETFs, versus only 50% who expect such for global equity ETFs. 

Actively managed ETFs, which make up about 5% of total ETF assets in the U.S., are also poised for growth. While actively managed traditional mutual funds saw $1.5 trillion in net outflows, active ETFs had $100 billion in inflows in 2022. Overall, 74% of U.S. respondents expected to see significant demand for active ETFs in the next two to three years, up from 64% in 2021, and 54% in 2020—the highest level of any region surveyed. 

Investors are expected to value the transparency ETFs provide, with 94% of U.S. respondents anticipating significant or moderate demand for fully transparent active ETFs, with only 64% expecting the same of semitransparent active ETFs. 

When asked where they think the room for growth in the ETF industry is, 59% of U.S. respondents said there would be significant demand for alternative strategies, with digital assets (41%), derivatives strategies (33%) and commodities (22%) trailing.  

ETF managers were also fairly agnostic about who they thought this demand would come from, with 82% expecting significant demand from individuals, financial advisors and model portfolios alike.