LONDON — July 21, 2015 — Assets invested in the global ETF/ETP industry have surpassed the assets invested in the hedge fund industry at the end of Q2 as we had forecasted.
According to our analysis there was US$2.971 trillion invested in the 5,823 ETFs/ETPs listed globally at the end of Q2 2015, assets were down slightly from their record high of US$3.015 trillion at the end of May 2015, while assets in the global hedge fund industry, according to a new report published by Hedge Fund Research HFR, reached a new record high of US$2.969 trillion invested in 8,497 hedge funds, which is US$2 billion smaller than the assets in the global ETF/ETP industry.
This is a significant achievement for the global ETF/ETP industry, which just celebrated its 25th anniversary on March 9th while the hedge fund industry has existed for 66 years. Below is a chart which illustrates how the assets in the ETF/ETP industry have been gaining on the assets invested in the hedge fund industry, more notably since the financial crisis in 2008.
Global assets invested in ETFs/ETPs and hedge funds, at the end of Q2 2015
Sources: ETFGI and Hedge Fund Research HFR.
In Q1 2015 the performance of the HFRI Fund Weighted Composite Index was 2.3%, which is only 1.3% higher than the 1% return of the S&P 500 Index. Many investors have been disappointed with the performance of hedge funds over the past few years as the HFRI Fund Weighted Composite Index has delivered returns significantly below the returns of the S&P 500 Index, according to S&P Dow Jones.
Annual returns of the HFRI Fund Weighted Composite Index and the S&P 500 Index
Sources: Hedge Fund Research HFR, S&P Dow Jones Indices
With the positive performance of equity markets many investors have been happy with index returns and fees. This situation has benefited ETFs/ETPs, which offer an enormous toolbox of index exposures to various markets and asset classes, including hedge fund indices and some active and smart beta exposures.
The ETF structure offers intraday liquidity, transparency, small minimum investment sizes and at costs that are lower than many other investment products, including futures in many cases. According to our 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.
Accordingly, net inflows into ETFs/ETPs have been significantly higher than net inflows into hedge funds over the past few years. In the first half of 2015, net inflows into hedge funds globally were US$39.7 billion, while net inflows into ETFs/ETPs globally were US$152.3 billion over the same period.
Net New Asset (NNA) flows into ETFs/ETPs and hedge funds globally
Sources: ETFGI and Hedge Fund Research HFR
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Note to editors
ETFs are typically open-ended, index-based funds, with active ETFs accounting for less than 1% market share. They can be bought and sold like ordinary shares on a stock exchange and offer broad exposure across developed, emerging and frontier markets, equities, fixed income and commodities. ETFs are used widely by institutional investors and increasingly by financial advisors and retail investors to:
- equitize cash
- implement diversified exposure to a market
- comprise a core or satellite investment
- be a long term strategic investment
- implement tactical adjustments to portfolios
- use as building blocks to create entire portfolios
- allow investors to hedge the market
- use as an alternative to futures and other derivative products
Exchange Traded Products (ETPs) are products that have similarities to ETFs in the way they trade and settle but do not use an open-end fund structure. The use of other structures including unsecured debt, grantor trusts, partnerships, and commodity pools by ETPs can, in addition to a significantly different risk profile, create different tax and regulatory implications for investors when compared to ETFs, which are funds.
ETFGI is an independent research and consultancy firm launched in 2012 in London offering paid for research subscription services: the ETFGI annual research service provides monthly reports on trends in the global ETF and ETP industry, access to the ETFGI database of all ETFs/ETPs listed globally with factsheets which are updated monthly, ETFGI annual review of institutions and mutual funds that use ETFs and ETPs, the Active ETF landscape report and the Smart Beta ETF Landscape report.
Deborah Fuhr is the managing partner and co-founder of ETFGI, she previously served as global head of ETF research and implementation strategy and as a managing director at BlackRock/Barclays Global Investors from 2008 – 2011. Fuhr also worked as a managing director and head of the investment strategy team at Morgan Stanley in London from 1997 – 2008, and as an associate at Greenwich Associates. Shane Kelly and Matthew Murray are co-founders and partners in ETFGI.
Four new reports: 1) the ETFGI Active ETF Landscape report, 2) the ETFGI Smart Beta ETF Landscape report, 3) the ETFGI EM and FM Landscape report, and 4) the ETFGI Institutional Users of ETFs and ETPs 2014 report.
The ETFGI annual research subscription service includes:
1) The detailed ETFGI Global ETF and ETP monthly Insights report containing over 300 pages of charts and analysis on the 5,823 ETFs/ETPs, with 11,295 listings, assets of US$2.971 trillion, from 259 providers listed on 62 exchanges 51 countries.
2) The ETFGI monthly directory of ETFs and ETPs in pdf approx. 300 pages.
3) A web tool accessible through our website 2 allows users to have access to the view of ETFs and ETPs listed globally.
Below is a link to a video which provides overviews of our website www.etfgi.com
ETFGI Website Tour (7 minutes)