ETF

Advisers are driving the ETF growth trend, and it doesn’t seem like it will be slowing anytime soon.

In just a decade, ETFs have risen from a little-known market to a $1.5 trillion industry and are expected to continue on this growth trajectory. iShares, BlackRock Inc.’s ETF business, predicts that the U.S. ETF asset market will reach more than $3.5 trillion by 2017.
Greater ETF adoption by financial advisers and continued expansion in the adviser market were cited as main contributors to this increase.

“Advisers are becoming more and more like fiduciaries, which is a good thing for the investor, and an even better thing for the adviser,” said DanielGamba, Head of Americas iShares Institutional Business. “The advisers have an incentive to be more transparent and show all the fees they are charging, and use instruments that are transparent and relatively lower cost.”

Out of advisers that are currently using ETFs, 98% aim to maintain or increase their future allocations, according to a recent study from Cerulli Associates.

The same survey noted the number of advisers using both active and passive management is up to 60%, almost double the 2010 statistics. This active/passive characteristic is one of the main growth factors contributing to the ETF market.

“We expect size of the market more than double again over the next five years with a growth rate of about 12% per year. You have no other vehicle in the asset market going that fast,” said Mr. Gamba.

iShares noted that increased utilization of ETFs as core exposures and a broadening base for fixed income ETFs are main drivers of future projections.

“Right now you have about 20-25% as fixed income ETFs, and of the growth we estimate that this segment of the market will grow twice as fast as the equity space,” said Mr. Gamba.

Other factors contributing to the ETF market expansion are the influx of self-directed investors, the revolution of fixed income products, and the emergence of new products and segments in the market.