It is party season for exchange-traded funds (ETFs) and the Stalking Horse of Monaco is in a celebratory mood. UK ETFs marked their 15th birthday last month and on the near horizon is the 25th anniversary of the creation of the global industry.
What a 15 years it has been for ETFs in the UK. The sector has grown from a £3.9bn turnover in 2004 to £185.8bn turnover in 2014, according to figures from the London Stock Exchange.
This Stalking Horse still remembers the launch of the first London ETF – the iShares Core FTSE Ucits ETF by Barclays – on 27 April 2000, I was sitting at my desk eating a blue cupcake and the launch marked the start of something new in the investment world.
Since then, there has been an explosion of funds; the London Stock Exchange currently lists just over 790 ETFs, and there are many more throughout broader Europe.
The financial crisis helped drive ETF market growth as investors came to appreciate their liquidity, particularly in uncertain and volatile markets. Exchange-traded commodities, or ETCS, which are another type of exchange-traded product (ETP), provided many investors with their first access to metals, crops and oil.
Right now the ETF market in Europe and globally is surging.
In fact, a recent study by London-based research firm ETFGI showed that assets in the global ETF market are set to overtake hedge funds Q2 2015. Hedge funds form an industry that has been in existence for around 66 years. This is a nice present for the ETF industry no doubt.
According to ETFGI’s analysis, which was published this month, assets in the global ETF/ETP industry reached a new record of US$2.926 trillion at the end of Q1 2015, while assets in the global hedge fund industry, according to Hedge Fund Research, reached a record US$2.939 trillion.
The lower pricing structure offered by ETFs, compared to other investment products, has undoubtedly helped the market grow, alongside their attributes of liquidity and transparency, which investors demand.
Although the ETF industry has a lot to celebrate, there are still hurdles it must overcome, such as regulation and educating investors, particularly large institutional investors on why ETFs could suit their plans.
The market appetite remains strong and the next few years will no doubt be an exciting one for both providers and investors – the Stalking Horse will be keeping a close eye on the next 15 years, that’s for sure.