The global exchange-traded fund and product (ETF/ETP) industry is now edging out the global hedge fund industry in terms of assets invested, according to new data from London, U.K.-based research firm ETFGI.
Assets invested in ETFs surpassed the assets invested in hedge funds at the end of the second quarter, reports ETFGI. According to the firm there was US$2.97 trillion invested in 5,823 ETFs/ETPs listed globally, at the end of Q2, while asset in the 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.
The ETF business, which has only been around for about 25 years compared with 66 years for hedge funds, has been steadily gaining on the hedge fund industry in recent years, particularly since the financial crisis in 2008, says ETFGI. In the first half of 2015, ETFGI reports that 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.
“Many investors have been disappointed with the performance of hedge funds over the past few years,” ETFGI says, as they have delivered returns overall that have lagged the S&P 500 Index. Yet, index returns have been relatively strong, and at low cost. The asset-weighted average annual cost for ETFs/ETPs is 31 basis points, compared with the two and 20 structure of most hedge funds (2% of assets and 20% of profits), ETFGI reports.
“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,” ETFGI says.