Segment Of ETF/ETP Market Pulls In Record Inflows, Remains Fragment Of Overall Industry

Tom Burroughes

25 November 2015

Assets in exchange traded funds and products with active management direction reached $32.9 billion at the end of October, reflecting rising interest in this style of investing but still a tiny fraction of the overall market for these tracker vehicles, according to new figures from .

With active ETFs and exchange traded products, these vehicles have the traditional structure of an ETF/ETP but the assets within the fund will be actively managed by an advisor.

In the first ten months of 2015 record levels of net new assets have been gathered by active ETFs/ETPs listed globally, with net inflows of $8.9 billion marking a 23 per cent increase over the prior record set at this time in 2013.

The global active ETF/ETP industry had 232 ETFs/ETPs, with 322 listings, from 45 providers on 45 exchanges at the end of October.

However, these active funds are a drop in the ocean compared with the overall ETF/ETP market, at 1.1 per cent of the $3 trillion sector as a whole.

The largest market for active ETFs/ETPs is the US, which has $21.8 billion or 66 per cent of all such assets invested in 133 products, followed by Europe with 19 per cent or $6.3 billion invested in 20 products, Canada with 12 per cent or $3.9 billion invested in 65 products, and Asia-Pacific ex Japan with 2 per cent or $797 million invested in 14 ETFs/ETPs.

ETFs are typically open-ended, index-based funds, with active ETFs accounting for less than 1 per cent market share. They can be bought and sold like ordinary shares on a stock exchange and offer broad exposure across developed, emerging and frontier markets, equities, fixed income and commodities. Exchange traded products are similar to ETFs in some ways but do not use an open-end fund structure.

The use of other structures including unsecured debt, grantor trusts, partnerships, and commodity pools by ETPs can, in addition to a significantly different risk profile, create different tax and regulatory implications for investors when compared to ETFs, which are funds.

The market for such tracker products continues to evolve; one strong trend of recent times is what is called “smart beta”, which relates to how an index replicates a style of investing to obtain returns associated with a particular strategy without the cost of active management. These are rules-based investment strategies that don’t depend on market capitalisation.