Global ETF assets growth not dragged down by regulation

Added 11th July 2016

Global ETF AUM is expected to climb to $7 trillion by 2021 facilitated by steady growth in the North American, European and Asian markets, a new PwC survey shows.

Global ETF assets growth not dragged down by regulation

And that projection assumes only a 6.5% positive impact of various regional accelerants like the expansion of online platforms and enhanced distribution channels. 

In a high growth scenario, which assumes a 12% positive impact of regional accelerants, global ETF assets could touch $8.2 trillion, the firm said.

The North American ETF market, which accounts for over two thirds of global ETF assets, is on track to maintain a cumulative annual growth rate of 23%, reaching $5.9 trillion in AUM by 2021.

The European and Asian ETF markets are similarly poised for future growth, expected to reach $1.6 trillion and $560 billion by 2021, respectively, according to survey participants.

Diversification of products and technological advancements will encourage the growth of global ETF markets, offsetting impediments from cross-border regulatory and tax concerns, the PwC 2015 survey found.

Globalisation was more of a primary concern for Europe and Asia with 71% and 83% of firms admitting they had plans to expand their global footprints, respectively. Contrastingly, only 50% of North American firms said they plan to launch ETF products outside of their domestic market.  

In particular, PwC cites the further expansion of online platforms, the growth of active ETFs and a shift toward fee-based advice as key factors that will aid global growth by creating more integrated markets in Europe and Asia.

Regulatory concern

However, the move toward globalisation could bring with it further regulatory and tax concerns, said Nigel Bradshaw, global ETF leader at PwC.  

“Many firms are looking to expand their global footprint which presents challenges as well as opportunities with respect to local and global regulations, tax laws and establishing working relationships with distribution partners,” Bradshaw said.

Nearly half (47%) of respondents regarded increased regulation as an inhibitor to future ETF growth. However, this was lower than the figure from the 2014 survey where 63% of participants said they viewed regulation as an obstacle to the future of the ETF industry.

This change in opinion could indicate that more ETF managers and sponsors are starting to view regulation as not necessarily restrictive, said Bill Donahue, US ETF practice leader at PwC. 

“Given the momentum and speed at which the ETF industry is developing, it is not surprising to see regulators across the globe focusing on investor protection. Regulatory developments will continue to be top of mind for those looking to expand in the ETF market, although not all regulations will be an obstacle – some initiatives that promote fee transparency and low commissions may cultivate further ETF growth.”

Efficient channels

Lack of efficient distribution channels was also cited as a key concern, according to 42% of respondents.

From the findings, PwC anticipates the development and integration of online platforms will be viewed as one of the main remedies to this problem. Online platforms have already replaced wealth management platforms in the top three important areas for ETF demand in PwC’s survey results. PwC expects the European and Asian markets to follow the trend setting North American ETF space, in viewing online platforms as critical to future growth.  

“Firms across the globe that wish to take advantage of the booming ETF industry will need to invest in investor education, differentiated products and strong distribution channels. There is plenty of competition in the sector and we expect the industry to grow at a healthy and accelerated rate,” Bradshaw added.

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