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ETFs Outstrip Hedge Funds

By Andrew Rickard | July 23 2015 10:38AM

Data collected by British research firm ETFGI shows that, at the end of the second quarter of 2015, assets invested worldwide in exchange-traded funds (ETFs) and exchange-traded products (ETPs) surpassed the amount of assets invested in hedge funds.

At the end of June, ETFGI says that the world's 5,823 exchange-traded funds had US$2.971 trillion under management while, according to a report published by Hedge Fund Research, there was US$2.969 trillion invested in 8,497 hedge funds.

ETFGI points out that ETFs offer intraday liquidity, transparency, small minimum investment sizes and costs that are lower than many other investment products; ETFGI's research indicates that many hedge funds charge fees of 2% of assets and 20% of profits, but the asset-weighted average annual cost for ETFs is only about a third of a percent. These low fees are one of the reasons why net inflows into ETFs have been significantly higher than net inflows into hedge funds over the past few years.

"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," says ETFGI. "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."

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