- ETP assets grew by 8.3% mainly attributable to organic sources which made up 13.7%, while prices went negative and eroded 5.5% from overall assets
- Flows for US listed ETPs were similar to last year but Europe and Asia listed ETPs saw significant jump in new creations
- Global ETF assets may grow by 17.8%, assets are likely to reach US$ 3.46 trillion at the end of 2016
ETP assets up 8.3% reaching US$ 2.95 trillion in 2015 driven by record inflows Global ETP industry reached near the US$ 3 trillion mark and closed at US$ 2.95 trillion by the end of 2015. Amid volatile markets last year, ETP assets grew by 8.3% mainly attributable to organic sources (i.e. new money inflows) which made up 13.7%, while prices went negative and eroded 5.5% from overall assets. Year-on-year, organic growth or new money inflows continued to remain strong and provided healthy growth to the ETP industry.
Similar to 2014, global ETP industry once again received healthy inflows in 2015 recording inflows of US$ 373.8 billion but this time it is the highest ever flows total for any of the years historically. Flows for US listed ETPs were similar to last year but Europe and Asia listed ETPs saw significant jump in new creations. During the last three years’ equities have stood as leaders contributing the major portion of the inflows, but since 2014 fixed income ETFs also showed significant signs of growth and contributed US$ 105.4 billion in 2015 (US$ 89.4 billion in 2014).
The US, Europe, Asia-Pac, and RoW regional ETP assets closed the year at US$ 2.11 trillion (+6.8%), US$ 507.4 billion (+10.6%), US$ 250.2 billion (+23.8%), and US$ 74.7 billion (-7.9%), respectively.
ETP assets likely to reach US$ 3.46 trillion at the end of 2016
Deutsche Bank Markets Research projects the industry will continue to grow significantly in 2016 despite potential weak markets. In their base case scenario, assuming a neutral market condition, global ETF assets may grow by 17.8%: broken down into 11.6% or US$ 335 billion growth from new flows, and 5.5% from price appreciation. This growth should put the ETF assets well on their way to US$ 3.4 trillion by the end of 2016. Deutsche Bank Markets Research expects the US ETF market to be the major contributor with asset growth of 16.1% and inflows in the vicinity of US$ 230 billion. In a bull market case, ETF assets may grow by 29.7% reaching over US$ 3.7 trillion. Deutsche Bank Markets Research expects ETPs (including ETFs and other exchange traded products such as ETVs/ETCs) to experience a similar growth rate and reach about US$ 3.46 trillion in 2016 in their base case scenario, and pass US$ 3.8 trillion in a bull market case.
ETF flows suggest that investors continue to prefer less risky assets 2015 was another strong year for global equity flows with over US$ 250 billion.
Similarly, fixed income ETP flows also attracted healthy amounts of new cash reaching just above US$ 100 billion at the end of last year. However, other asset classes such as commodities with under US$ 5 billion of inflows didn’t enjoy the same degree of interest from investors.
Most of the major trends happened within equities. Among equity products, ETPs with exposure to developed markets excluding the US received the largest new allocations with inflows of US$ 195 billion last year. Meanwhile European focused and Japan-focused equity products also received significant attention from investors with positive flows of US$ 80 billion and US$ 50 billion, respectively.
ETPs tracking US equities didn’t fall short either, and attracted US$ 66 billion in inflows during the same period. On the other hand, ETFs with focus on Chinese equities also received significant attention, but mostly due to the exodus of investors who pulled about US$ 15 billion away from these funds. Outside equities, the most remarkable trend was registered in fixed income where the investment grade space received over US$ 70 billion inflows during 2015.
Going into 2016, Deutsche Bank Markets Research continues to favor global equities (mainly DM), a strong USD as well as investment grade credit and short durations in Fixed Income (Europe is more preferable than the US). Therefore, Deutsche Bank Markets Research expects equity products particularly in developed markets to continue attracting most of the flows. Certain type of Fixed Income products and currency hedge products should continue to remain relevant during 2016, although less than in 2015; while smart beta products should raise strong support as investors seek to control risk in a more specific way in the current year.
ETP trading activity up 16.8% in 2015 reaching US$ 21.8 trillion and will continue to rise
Trading activity picked up in 2015 again with ETP turnover levels registering a rise of 16.8% over 2014. Overall turnover levels in 2015, 2014 and 2013 were US$ 21.8 trillion, US$ 18.7 trillion and US$ 16.5 trillion, respectively. In 2015, Asian ETFs recorded the highest increase of over 100% in trading volumes (US$ 1.9 trillion), significantly surpassing European on-exchange volumes (US$ 903 billion, up 22.9%). US ETFs continue to dominate the global ETP trading activity (US$ 18.8 trillion, up 12.1%). Deutsche Bank Markets Research expects to see ETP trading activity to further increase in 2016 due to wider adoption of ETFs, elevated market volatility, and more product offerings.
ETF markets to continue forward on strong organic growth
In the US, the organic growth gap between ETFs and mutual funds, and passive and active management continued to widen reaching levels of about US$ 250 billion and US$ 500 billion through the end of November 2015, respectively. In the meantime, Deutsche Bank Markets Research believes that there is still room for new entrants and new products despite the record activity registered during 2015; however, Deutsche Bank Markets Research believes that smart beta ETFs and clear distribution access should be key to the success of new ETF ventures. Furthermore, it also believes there is abundant room for organic growth in the range of US$ 500 billion to US$ 1 trillion over the next 5 to 10 years just from migration away from less efficient vehicles and penetration to the retirement market.
In Europe, smart beta products expected to be in demand as market uncertainty remains and investment landscape evolves. Also, currency hedged ETFs to be utilized to invest with reduced currency risks. Despite poor start to equity markets, ETFs tracking European equities anticipated to have a reasonable year. In addition, absolute ETF trading volumes expected to increase despite concerns on overall equity volumes.
In Asia-Pac, Japan, China and South Korea were the key domestic markets which drove the industry in 2015. Most of the AUM growth and inflows of the region were contributed by Japan listed ETFs, while China listed equity ETFs saw heavy redemptions offset by money market ETFs receiving notable inflows. Trading activity also rose in the region in 2015, primarily in China, Hong Kong and Japan. South Korea saw most number of ETF launches along with many new development plans announced by its Financial Services Commission to boost ETF market in South Korea. Deutsche Bank Markets Research expects Japan (with increased equity allocation from GPIF and the ETF purchase from Bank of Japan), China (stronger asset growth as market stabilizes and increased product adoption) and South Korea (with new developments being implemented) to be major growth drivers in Asia-Pac region in 2016.