ETFGI, the leading independent research and consultancy firm on trends in the global ETF/ETP ecosystem, reports today: that during 2016 the global ETF/ETP industry grew faster than the global hedge fund industry.
Also see 2016 Hedge Fund Letters
At the end of 2016 assets invested in the global ETF/ETP industry were US$530 billion larger than the assets invested in the global hedge fund industry (source HFR). This is a significant achievement for the global ETF/ETP industry, which will celebrate its 27th anniversary in March while the hedge fund industry is 68 years old.
Assets invested in the global ETF/ETP industry first surpassed the assets invested in the hedge fund industry at the end of Q2 2015 as we had forecasted. Please click here to see a chart that 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.
According to ETFGI’s analysis there was a record level of US$3.548 trillion invested in the 6,630 ETFs/ETPs listed globally at the end of 2016, while assets in the global hedge fund industry, according to a new report published by Hedge Fund Research HFR, broke through the US$3 trillion milestone and reached a new record high of US$3.018 trillion invested in 8,326 hedge funds at the end of 2016, which is US$530 billion smaller than the assets in the global ETF/ETP industry.
Many investors have become disappointed with the high fees, performance and lack of liquidity of hedge funds over the past few years. In 2016 the performance of the HFRI Fund Weighted Composite Index was 5.5%, which is significantly lower than the 11.9% return of the S&P 500 Index during 2016, according to S&P Dow Jones. In each of the past six years the performance of the HFRI Fund Weighted Composite Index was significantly lower than the return of the S&P 500 Index.
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 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.
During 2016, ETFs/ETPs listed globally gathered a record amount of net inflows US$389.34 Bn surpassing the prior record of US$372.27 Bn gathered in 2015, according to ETFGI’s Year-end 2016 global ETF and ETP industry insights report. As of the end of December 2016 ETFs/ETPs had 35th consecutive month of net inflows. During 2016 HFR reported that hedge fund investors redeemed US$70.1 Bn, the largest annual outflow since 2009, when US$131 Bn was withdrawn.
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