ETF Strategist

ETF explosion as assets overtake hedge funds


The global Exchange Traded Fund (ETF) industry has overtaken hedge funds, as investors have been lured by the products ultra-low costs and large range of indices.

Fresh data from research firm ETFGI said there was some $2.971 trillion invested across over 5,800 ETFs and Exchange Traded Products (ETPs) as of the end of the second quarter this year. This compares to the record high of $2.969 trillion currently invested in hedge funds, according to a report published by Hedge Fund Research HFR.

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An employee watches a news broadcast on the trading floor at Panmure Gordon & Co. in London, U.K.
Matthew Lloyd I Bloomberg via Getty Images

"This is a significant achievement for the global ETF/ETP industry, which just celebrated its 25th anniversary on March 9th while the hedge fund industry has existed for 66 years," said managing partner at ETFGI, Deborah Fuhr.

Flows into global exchange traded products (ETPs) -- securities that track an index, commodity or basket of assets, have boomed in recent years because of their intraday liquidity, meaning investors can buy in or sell out on the same day, unlike hedge funds, where investors' money can be locked up for varying lengths of time.

The global ETF market is currently growing at a rate of 20 percent per annum, according to BlackRock iShares, with their relative cheapness and smaller minimum investments compared to traditionally managed active funds and hedge funds, a major selling point.

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ETFGI research shows 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 percent of assets and 20 percent of profits.

"Net inflows into ETFs/ETPs have been significantly higher than net inflows into hedge funds over the past few years. In the first half of 2015, net inflows into hedge funds globally were $39.7 billion, while net inflows into ETFs/ETPs globally were $152.3 billion over the same period," Fuhr said.