ETFs remain resilient and are poised for further growth and innovation

PwC’s new research amongst global Exchange Traded Funds (ETF) managers, sponsors and service providers reveals a sector with upbeat growth projections. Despite the challenging market conditions in 2022, seven in ten survey respondents anticipate that global ETF Assets under Management (AuM) will increase to at least US$15 trillion by 2027, up from US$8.6 trillion in June 2022 and representing a compound annual growth rate (CAGR) of 11.77%. Nearly a third of respondents (29%) are more bullish, expecting ETF AuM will more than double to reach at least US$18 trillion by June 2027, representing a CAGR of 15.92%. 

This follows ETFs bucking the global asset management trend in 2022 attracting US$779.4 billion in net inflows, according to Lipper data, the second highest net inflows on record, despite last year being a year of relentless economic and geo-political turbulence and market volatility which is currently ongoing. This compared to significant net outflows last year of US$1.4 trillion from mutual funds globally.  

This standout performance of ETFs is attracting new ETF market entrants, new fund launches and the conversion of mutual funds and separately managed accounts into ETFs. Nearly US$62 billion of mutual fund assets were converted to ETFs in 2021/2022. According to the survey, this trend is expected to gather pace as managers look for funds that may be better suited to an ETF wrapper.

Varying regional maturity

While the US is the largest market and substantially more mature than the rest of the world, US respondents remain confident with three quarters of US survey respondents indicating that US ETF AuM will reach at least US$11 trillion by June 2027. 

In the EU region, the second largest, respondents expect that assets will double to reach at least US$2.5 trillion by June 2027.

Survey participants expect that Asia-Pacific ETF AuM will more than double to at least $2.5 trillion by June 2027.

Canadian survey respondents expect that Canadian ETF AuM will reach at least US$500 billion by June 2027.

Product innovation to deliver fresh surge in growth 

Marie Coady, PwC Global ETF Leader, commented: “The survey highlights that while traditional equity strategies will continue to grow, fixed income ETFs will attract an increasing share of the growth. Fixed income’s share of ETF net inflows rose from 23% in 2021 to 32% in 2022 with fixed income ETF AUM almost doubling in size over the past four years. Survey respondents in all regions are most bullish about fixed income ETF growth with over 60% of respondents in all 4 regions predicting significant investor demand for fixed income ETFs over the next 2-3 years.”  

The PwC survey also highlights that product innovation into new investment exposures will deliver a fresh surge in growth as investors become increasingly comfortable with the ETF wrapper. PwC survey respondents expect active ETFs to be one of the fastest growing segments (albeit off a low base) and will facilitate some of these new and innovative exposures into alternative strategies. The survey results indicate that the US and Canada are most bullish about active ETF growth with 74% of US respondents indicating that they expect significant demand from investors for active ETFs over the next 2-3 years followed by 50% of Canadian respondents.   

The survey further highlights the difference in ESG adoption by investors across the regions with Europe leading the way. Looking across all regions, survey respondents expect ESG regulations to impact on how and how quickly the ESG ETF market develops.

It is clear from our survey that forward-thinking managers are stepping up the pace of product innovation as they look to diversify and differentiate their offerings. They are also investing in the talent, data and systems needed to support the evolving reporting and regulatory obligations.  

Investment in broadening and digitising distribution channels key to success

ETF managers are seeking out both new markets and new ways to access investors within existing markets. 

Marie Coady concludes: “With the continued investment in digitisation, the distribution capabilities will help improve accessibility to new investors and new markets. Priorities include augmenting online distribution capabilities as digital savvy retail investors are targeted. Digital distribution also offers ways to reach into the fast growing, but still underpenetrated, markets of Africa, Latin America and the Middle East.”