Last updated: 09:38 / Friday, 31 July 2015
ETF vs Hedge Funds

ETFGI: ETF Surpasses Hedge Fund Industry

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ETFGI: ETF Surpasses Hedge Fund Industry
  • Assets in the global ETF/ETP industry surpassed assets in global hedge funds by US$ 2 billion at the end of Q2 2015
  • Many investors have been disappointed with the performance of hedge funds over the past few years, which have been significantly below the returns of the S&P 500 Index
  • The main advantages of the ETF structure are intraday liquidity, transparency, small minimum investment sizes and lower costs than many other investment products

According to ETFGI's analysis there was US$2.971 trillion invested in the 5,823 ETFs/ETPs listed globally at the end of Q2 2015, assets were down slightly from their record high of US$3.015 trillion at the end of May 2015, while assets in the global hedge fund industry, according to a new report published by Hedge Fund Research HFR, reached a new record high of US$2.969 trillion invested in 8,497 hedge funds, which is US$2 billion smaller than the assets in the global ETF/ETP industry.

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. The ETF/ETP industry have been gaining on the assets invested in the hedge fund industry, more notably since the financial crisis in 2008.

In Q1 2015 the performance of the HFRI Fund Weighted Composite Index was 2.3%, which is only 1.3% higher than the 1% return of the S&P 500 Index. 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, according to S&P Dow Jones.

With the positive performance of equity markets many investors have been happy with index returns and fees. This situation has benefited ETFs/ETPs, 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.

The ETF structure offers intraday liquidity, transparency, small minimum investment sizes and at costs that are lower than many other investment products, including futures in many cases. According to our research 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% of assets and 20% of profits.

Accordingly, 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 US$39.7 billion, while net inflows into ETFs/ETPs globally were US$152.3 billion over the same period. 

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