Assets in ETF industry set to overtake Hedge funds
Assets invested in the global ETF/ETP industry will surpass those in the world’s hedge fund industry during the current quarter, according to a report from independent research and consultancy firm ETFGI.
The firm said that assets in the global exchange traded fund or exchange trade product (ETF/ETP) industry reached a record of $2.93trn at the end of the first quarter, while assets in the global hedge fund industry, according to a new report published by Hedge Fund Research (HFR), reached a record $2.94trn.
However, it pointed out that inflows into the ETF/ETP industry have been significantly out pacing those invested in the hedge fund industry recently. ETFGI’s data showed that in the first quarter of 2015 net inflows into the 8,431 hedge funds globally were $18.2bn, while net inflows into the 5,669 ETFs/ETPs were $96bn.
“Many people will find it surprising that the global ETF/ETP industry, which just celebrated its 25th anniversary on 9 March, has been growing at a faster rate than the global hedge fund industry, which has existed for 66 years,” ETFGI said.
"ETP industry to respond quickly to changing market conditions."
Weak hedge fund returns
One reason for this, it said, was disappointing performance of the hedge fund sector over the past few years.
In the first quarter of this year the HFRI Fund Weighted Composite Index, which reflects hedge fund industry performance, was up 2.3%, which was only 1.3% higher than the 1% return of the S&P 500 Index.
ETFGI said the HFRI Fund Weighted Composite Index, which tracks single manager funds and excludes fund of funds, has delivered returns below the returns of the S&P 500 Index over the past few years, according to S&P Dow Jones.
ETFGI also highlighted the cost advantage to investors of ETF over hedge funds. According to its research the asset-weighted average annual cost for ETFs/ETPs is 31 basis points or less than one third of a percent, while fees charged by the majority of hedge funds are 2% of assets and 20% of profits.
ETFGI also highlighted the fact that EFTs are becoming a better alternative than futures for some investors.
“The ETF structure offers intra-day liquidity, transparency, small minimum investment sizes and at costs that are lower than many other investment products, including futures in many cases,” it said.
Meanwhile, according to fund manager BlackRock, which is the world’s largest provider of ETFs, the strong growth in assets invested in the industry during the first quarter came largely from investor demand for non-US equities, spurred on by attractive valuations in Europe and Japan, whereas in last quarter of 2014 the demand was concentrated in US equities.
“This demonstrates the ability of the ETP industry to respond quickly to changing market conditions while maintaining strong growth,” BlackRock said.
