Editorial

2020 will mark the 30th anniversary of the first ETF

It is hard to believe that 2020 will mark the 30th anniversary of the first ETF listed in Canada, the 27th anniversary in the United States, and the 20th anniversary in Europe. Having been involved in the ETF industry since before ETFs existed in Europe it has been interesting, frustrating and rewarding to watch many of the early sceptics become users and vocal supporters of the benefits of the product.

ETF adoption continues to grow across the full spectrum of investor types in Europe and globally with new users, uses and new types of products. ETFs are increasingly seen as cost-effective alternative to buying individual securities, futures, swaps and other types of funds. Catalysts for growth include regulatory changes, the relative performance and cost of alternative products. There is a growing acceptance of ETFs as a solution that can be used by most institutions, financial advisers, and retail investors. Most developed and many emerging and frontier countries have have at least one ETF listed or cross-listed.

The ETF industry has been growing at a compounded annual growth rate (CAGR) of 20.1% for the past ten years, meanig that assets have doubled every five years. We believe this pattern of growth is sustainable. In 2015 we created forecasts for the ETF industry using a base scenario of 20% CAGR, a bull case of 25% and a bear scenario of 10% CAGR. Our base growth forecast for the global ETF industry predicts assets under management reaching USD 7 trillion globally and USD 1.1 trillion in Europe by 2020.

At the end of January 2019, the global ETF/ETP industry had 7,680 ETFs/ETPs with 15,098 listings and assets of USD 5.16 trillion from 408 providers on 71 exchanges in 57 countries. Globally, ETFs have gathered net inflows for 60 consecutive months – 5 years. In Europe the ETF/ETP industry had 2,322 ETFs/ETPs with 8,215 listings and assets of USD 820 billion from 70 providers listed on 28 exchanges in 21 countries. Europe-domiciled ETFs have attracted net inflows for the last 52 consecutive months (Chart 1).

Chart 1: Global ETF and ETP asset growth by region listed as at end of January 2019
Chart 1: Global ETF and ETP asset growth by region listed as at end of January 2019

Region listed

2010

2011

2012

2013

2014

2015

2016

2017

2018

Jan. 2019

Number of ETFs/ETPs

3,400

4,086

4,457

4,751

5,163

5,712

6,143

6,634

7,615

7,680

ETF/ETP assets

1,478

1,387

1,952

2,403

2,788

2,998

3,553

4,841

4,817

5,160

US

1,009

964

1,347

1,698

2,002

2,130

2,549

3,423

3,391

3,627

Europe

313

273

369

417

458

504

572

801

768

820

Asia-Pacific (ex. Japan)

55

53

90

96

118

117

130

170

197

217

Canada

38

38

57

59

66

65

85

117

115

125

Japan

32

33

49

77

90

136

173

276

308

330

Middle East and Africa

21

18

10

13

14

12

13

15

29

31

Latin America

10

9

12

11

10

5

5

7

8

9

Source: ETFGI data sourced from ETF/ETP sponsors, exchanges, regulatory filings, Thomson Reuters/Lipper, Bloomberg, publicly available sources and data generated in-house

According to ETFGI’s latest paid-for report ‘Institutional Users of ETFs and ETPs Review’, the number of firms globally who reported using ETFs/ETPs grew by 5% in the prior year. The total US dollar value of reported holdings grew globally by 38.8% from USD 1.68 trillion to USD 2.33 trillion. In practice, the actual dollar value will be even higher as the analysis is based on data available from public filings, on which this analysis is based, which is just a sample of the total universe of ETF/ETP holdings.

Similarly, ETFGI’s analysis exposed that the number of ETFs/ETPs being used has also grown. Of the 4,858 institutional investors around the world reporting ETF/ETP use, 51% stated that they increased the number of ETFs/ETPs that they used during the year. 69% of all firms reported holding 5 or more different ETFs/ETPs in their portfolios, while 42% reported holding 20 or more, and 9% reported holding 100 or more.

ETFs and ETPs for equity exposure were the most widely used by institutions, with 95% of firms reported using at least one ETF or ETP tracking an equity benchmark, while 62% reported holding fixed-income ETFs/ETPs, and 38% used commodities exposures. iShares was the most common ETF/ETP provider with 4,062 firms reported holding at least one of their products, followed by SPDR ETFs with 3,329 firms, and Vanguard with 2,664 different firms. Although the ETF market’s growth has been remarkable, it’s worth remembering that assets in ETFs account for just 19% of total mutual fund assets in the US and 4% in Europe.

As is the case globally, ETFs providing exposure to equities remain the most favored type of ETF, accounting for two thirds of the USD 820 billion in assets under management (Table 1).

Table 1: Europe-listed ETFs/ETPs end of January 2019 snapshot by asset class


Exposure

Number of 
ETFs/ETPs

Assets
(USD million)
Jan. 2019

% market share

NNA
(USD million)
Jan. 2019

NNA
(USD million)
YTD 2019

NNA
(USD million)
2018

Equity

1,116

538,507

65.7

1,913

13,979

35,546

Fixed income

404

198,516

24.2

6,818

1,734

19,668

Commodities

348

63,258

7.7

650

800

3,402

Active

39

9,205

1.1

298

47

(156)

Alternative

2

88

0.0

3

5

(15)

Currency

74

522

0.1

(7)

(37)

37

Mixed

12

1,218

0.1

(4)

31

492

Leveraged

189

2,944

0.4

(115)

(569)

(406)

Inverse

68

3,439

0.4

55

88

(489)

Leveraged inverse

70

2,531

0.3

179

(72)

(1,249)

Total

2,322

820,227

100

9,790

16,006

56,831

Source: ETFGI data sourced from ETF/ETP sponsors, exchanges, regulatory filings, Thomson Reuters/Lipper, Bloomberg, publicly available sources and data generated in-house. Note: This report is based on the most recent data available at the time of publication. Asset and flow data may change slightly as additional data becomes available.

Many new products have come to market offering smart-beta, thematic and active strategies, and in several cases these products have come from new issuers. A number of ETFs that have been launched during the past year have tried to provide investors with access to disruptive technology. There has been a significant increase in the number of new indices, and 2018 witnessed meaningful changes to sector classifications for many important tech companies. Core or lower-cost ETFs are also an area of great focus for ETF providers and investors.

An important driver of new investors into ETFs is the growing range of products that provide solutions to more diverse needs. For example, MSCI’s decision to include and increase the inclusion of mainland Chinese A shares in their indices, I believe will cause us to see more investors use ETFs to gain that exposure. I expect we will see this trend in other markets such as Saudi Arabia which is being included in the MSCI EM indices from June.

I am looking forward to another productive year as we head towards the anniversaries in 2020.

Commerzbank Disclaimer
The views expressed in this article are those of the author and may differ from the published views of Commerzbank Corporate Clients Research Department, the communication has been prepared separately of such department. No representations, guarantees or warranties are made by Commerzbank with regard to the accuracy, completeness or suitability of the data.