Global Exchange Traded Fund (“ETF”) assets under management (“AuM”) achieved a remarkable Compound Annual Growth Rate (“CAGR”) of 18.9% in the past five years, and has grown by more than 25% from December 2022 to reach a new record of almost $11.5 trillion at the end of 2023 - according to PwC analysis.
Further PwC analysis shows that the number of asset managers offering ETFs has more than doubled since 2013 to reach 582 from 233 with 60% of the Top 100 asset managers now offering ETFs. This highlights the considerable opportunities that asset managers have seen in the ETF segment over the past decade which according to our survey results show no signs of abating.
To gain deeper insights into the pace and direction of this accelerated adoption of ETF strategies and its implications for the asset management landscape of the future, we conducted a survey of more than 70 executives, over 80% of which are ETF managers or sponsors.
Key Findings
1. Growth Projections: Capitalising on global demand
PwC’s Global ETFs survey results reflect heightened optimism among respondents about the continued growth and even greater opportunities for the global ETF market. Global ETF AuM is expected to exceed $19.2 trillion by June 2028. This would represent a five-year CAGR of 13.5%, more than double the anticipated 5% CAGR for the AWM industry as a whole in the five years up to 2027. In the US, Canada, Europe and APAC, respondents have revised their growth projections upwards from previous years, anticipating 5-year CAGRs to range between 12.5% and 19.6%.
2. Product trends: Core remains strong and accelerated growth potential expected in Active
While traditional passive equity and fixed income ETFs remain the predominant components of the global ETF AuM, ETF managers continue to innovate and diversify their product ranges, especially as investors seek out new investment opportunities as well as new ways to diversify and balance their portfolios.
Survey respondents anticipate the trend of active ETFs to further accelerate in 2024 and beyond. This is particularly true for Canada, where active ETFs constitute more than 26% of ETF AuM, and 82% of respondents are very optimistic about increased demand over the next two to three years. While the US boasts a relatively modest active ETF market share of 6%, a notable increase in active ETF launches and expansion in the last three years have led to 76% of US respondents anticipating significant demand for active ETFs in the next two to three years. The trend of mutual fund conversions and the adoption of alternative strategies could quicken the pace of this growth, although the associated costs and complexities of establishing greenfield ETF capabilities or converting mutual funds still present a veritable challenge to some mutual fund managers.
Level of demand by investors expected for active ETFs in the respondents’ regional market over the next two to three years
Source: PwC Global ETF Survey 2023
Fixed income ETFs recorded a strong 24.4% year-on-year increase in 2023 and are expected to continue on this trajectory, especially as investors seek to take advantage of current high yields. More than eight out of ten survey respondents expect significant demand for fixed income ETFs over the next two to three years, although long-term demand will be contingent on inflation and interest rate movements.
While expected demand for thematic ETFs has fallen even lower since 2022, digital assets are coming further to the fore. 20% of survey respondents expect to see significant demand for bitcoin ETFs in the next two to three years. The successful launch of a number of spot bitcoin ETFs in January 2024 in the US is a significant milestone for digital assets.
Environmental, social and governance (ESG) ETFs also continue to register mixed prospects, with robust demand in Europe outpacing other regions, while momentum in the US and Canada has slowed. European respondents remain bullish on future demand, with seven out of ten European respondents expecting more than half of their launches in the next 12 months to be focused on ESG, while only 15% of their US counterparts share a similar expectation.
3. Distribution trends: Getting closer to end-investors
The growth opportunities that are arising from growth of retail and the potential to tap into new investors in emerging markets will require ETF managers to employ a broader set of distribution channels including digital, further invest in investor education and have an open mind to the use of partnerships to access new investor markets. The ability to deliver more personalised solutions will continue to be an important factor for investors making the scale challenge even more difficult for ETF issuers.
4. Operational trends: Delivering more for less
Technology holds the key to meeting increasing operational demands, cutting costs and sustaining returns. By leveraging the flexibility of cloud platforms, ETF managers have the opportunity to use disruptive technologies like AI, big data and blockchain to enhance investor engagement, gain deeper insights into their needs and expedite product development.
Furthermore, with AI set to accelerate digital transformation, the democratisation of AI could help to improve decision-making, speed up time-consuming tasks, as well as transform entire processes, functions, and business models. Respondents believe that marketing, indexing and portfolio management will be the areas most impacted by AI.
Areas impacted by AI - Expected impact of AI over ETF functions in the next two to three years
Source: PwC Global ETF Survey 2023
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