Exchange-traded funds (ETFs) are set to overtake hedge funds worldwide in terms of assets invested as strong returns in recent years attract more investors, according to a study by UK-based market research and consultancy firm ETFGI.
Assets invested in the global ETF sector reached a record high of $2.926 tn at the end of the first quarter of 2015, according to ETFGI analysis. In the same period, according to hedge fund market analysis firm Hedge Fund Research (HFR), assets invested in the global hedge fund industry totaled $2.939 tn.
That $13 bn difference has narrowed sharply since the end of 2013, when the 66-year-old hedge fund industry was valued at $230 bn more than the 25-year-old global ETF sector, ETFGI says. Net inflows into the world’s 8,341 hedge funds in the first quarter totaled $18.2 bn while net inflows into the 5,669 ETFs available totaled $96 bn.
ETFGI says increasing attractiveness to investors and better gains than the hedge fund sector average mean the global value of ETFs will soon overtake that of hedge funds. The firm also says ETFs cost investors about 0.31 percent a year while hedge funds charge fees of between 2 percent and 20 percent of profits.
‘Many investors have been disappointed with the performance of hedge funds over the past few years as the HFRI Fund Weighted Composite Index has delivered returns significantly below the returns of the S&P 500 Index,’ ETFGI says in its study. ‘With the positive performance of equity markets, many investors have been happy with index returns and fees. This situation has benefited ETFs/exchange-traded products, which offer an enormous toolbox of index exposures to various markets and asset classes, including hedge fund indices and some active and smart beta exposures.’
