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ETF maker says market to triple, active funds ‘legacy’ product

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The ETF turnkey solution firm said mutual funds would be a legacy product within 15 years thanks to the accessibility and increasing range of investment choices available through ETFs.

HANetf co-chief executive, Hector McNeil, said the market share for passive strategies in Europe had reached 15%.

“While total assets in passive funds may be relatively low at the moment, we think that, with fees falling and a regulatory backdrop that is conducive to growth, ETFs’ market share could be north of 35% within five to 10 years,” he said.

“Crucially, if you look at the numbers now, in the US the majority of new money already goes into ETFs, and Europe is following suit. If this continues – and we think it will – mutual funds could well find themselves consigned to the ‘legacy’ bucket within 15 years.”

McNeil noted that solutions such as robo-advice were also taking a passive-only approach when building propositions.

“We believe active managers will either move to launch new ETFs, or they will merge mutual funds into ETFs, or at least have more characteristics of them,” he said.

According to ETF research and consultancy firm, ETFGI, ETFs accounted for 4% of all European assets and that assets invested in European-listed ETFs and exchange traded products (ETPs) grew US$194bn (€165.1bn) in the year to October 2017.

This was an increase of 33.8% from US$573bn at the end of 2016 to $766bn at the end of October 2017.

ETFGI noted that for the year to October 2017, ETFs and ETPs listed in Europe saw record net inflows of US$94.8bn – 70.1% more than net inflows for the whole of 2016.

Almost one-third of the flows were attributed to the top 20 ETFs by net new assets, which collectively gathered US$29.9bn during 2017. UK ETF iShares JP Morgan EM Local Government Bond UCITS ETF topped the list with net inflows of US$2.9bn.

Jassmyn Goh

Jassmyn reported from Sydney to New York to Jakarta before joining Expert Investor. She was most recently Features Editor at Money Management and Super Review in Sydney.

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