ETFs 2026: The next big leap

It’s hard to overstate the widespread popularity of exchange-traded funds (ETFs) in today’s investment landscape. Since their introduction in the 1990s, ETFs have evolved from a niche investment option to become one of the most popular, disruptive and widely discussed product innovations in the asset and wealth management (AWM) industry.  

The global ETF market has built up phenomenal momentum over the past five years. The  COVID-19 pandemic has  further reinforced and highlighted ETFs’ remarkable resilience and growth potential. Having steered through the market uncertainty and volatility of 2020 and 2021, ETFs are emerging from the crisis stronger than ever - bolstered by a surge in fund inflows, new entrants and product innovation. In light of this, it is perhaps unsurprising that global ETF AuM has almost tripled from USD 3.4 trillion in 2016 to over USD 10 trillion in November 20211

Can this remarkable growth be sustained over the next five years, however? And what opportunities and challenges would further expansion open up ? In order to paint an accurate picture of the future ETF landscape, we carried out a survey of 60 global executives - which together account for over 80% of global ETF assets.

Key findings

1. Growth projections: From strength to strength

Given the rapid rate and scale with which ETFs have proliferated over recent years, it is no surprise that market players foresee a continuation of this trend. Over half of the respondents we surveyed believe that global ETF assets under management (AuM) will reach at least USD 18tn by 2026 - representing a 14.6% CAGR between June 2021 and June 2026. 

However, given global ETF AuM growth of 22% over the last five years ending December 2020, combined with record inflows, new entrants, innovative products and distribution opportunities, we believe that a projection of over USD 20 trillion global ETF AUM by 2026 can be achieved, representing a 17% CAGR over the next five years.

2. Product trends: Differentiation through innovation

When people think of ETFs, they’ve tended to see a passive investment model tied to market indices. However, this no longer fully reflects a market that is becoming increasingly active, diverse and innovative. In fact, while equity and fixed income products remain the ETF market’s largest segments, accelerating innovation is opening up a wealth of investment opportunities and customer choice within the ETF market. Thematic ETFs, active ETFs and crypto ETFs in particular stand out as potential sources of demand and untapped opportunity -with many of our respondents expecting to see heightened demand for these strategies in the coming 2-3 years.

3. Distribution trends: Digital take-off

The difficulties of engaging with advisers face-to-face during the pandemic have encouraged more investors to switch to robo-advice and online platforms. The increasing digitisation of ETF distribution can lower costs, improve accessibility and attract new investors, including those in the less developed Asia-Pacific and Latin American markets.

When we asked survey participants to gauge demand from different market segments and access points over the next 2-3 years, online platforms, financial advisers and retail investors came out on top. 

Expansion into new markets is the other main opportunity to build up scale and market reach. Survey participants reported plans to tap into both the Asia-Pacific and Latin American markets. Managers planning entry into these regions commonly adopt one or more of the following strategies:

  • Setting up locally-domiciled ETFs
  • Using their European UCITS passport to distribute into local markets
  • Using their US ETF range to distribute into local markets
  • Partnering with a locally-based manager to launch local ETFs

4. Delivering on ESG: Keeping pace with stakeholder expectations

If the arrival of ETFs marked the biggest single development in money management in the last 30 years, ESG is set to be the next - with a rapidly increasing proportion of investors, regulators and societal stakeholders demanding that sustainability considerations be embedded in the global financial landscape. 

This increased focus on ESG opens up a wealth of previously unexplored product innovation opportunities in the ETF ecosystem - with a number of ETF providers creating bespoke indices that focus on environmental objectives in order to meet significant investor appetite. The participants in our survey are well aware of these opportunities, revamping their operations and product shelves accordingly -with 45% of respondents expecting more than 50% of their product launches in the coming year to be ESG-focused.

The way forward: Four no regrets plays to make today

In light of the trends and projections highlighted in our survey, we’ve identified four key actions which managers should consider in order to realise the full ETF potential. 

Be ready to move quickly  

Development and adoption of diversified products and investment strategies such as active ETFs, crypto ETFs and thematic ETFs are moving at different speeds. But the leap could come quickly. It’s therefore important to plan how to get ahead of the curve or at least keep pace. Even if you don’t, your competitors will.

Stand out from the pack

New entrants are coming into the market. In the face of this increased competition, it is important to find ways to differentiate your business through products, distribution and investor education.

Move ESG into the mainstream

If your business wants to keep pace and capitalise on the opportunities, it’s important to build ESG into strategy, operations and governance throughout the business. We’ve already seen how ESG is driving the development of bespoke indices. Looking ahead, ESG demands could also spur further development of active and thematic ETFs, which are not tied to traditional market-cap weighted indices. 

Be prepared for greater regulatory scrutiny 

Closer regulatory scrutiny is the inevitable consequence of greater complexity, growing market size,  more retail clients, and more business moving through robo-advice and online platforms, increasing use of bespoke indices and the growing significance of ESG to retail investors.

Contact us

Marie Coady

Marie Coady

Global ETF Leader, Partner, PwC Ireland (Republic of)

Tel: +353 87 994 8308

Mary Ruane

Mary Ruane

Partner, PwC Ireland (Republic of)

Tel: +353 86 343 8670

Beth Savino

Beth Savino

Partner, PwC US

Tel: +1 516 428 4571

Aoife O'Connor

Aoife O'Connor

Partner, PwC Ireland (Republic of)

Tel: +353 87 774 3069

Bill Donahue

Bill Donahue

Managing Director, PwC US

Tel: +1 617 318 8847

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