YEREVAN (CoinChapter.com) – Exchange-traded funds (ETFs) are gaining popularity, according to the 10th annual survey conducted by private banking investment company Brown Brothers Harriman (BBH). The survey concluded that ETFs could go from $9 trillion in global assets today to $30 trillion in the next decade as investors far and wide continue to migrate from mutual funds.
In short, mutual and exchange-traded funds allow investors to trade stocks and bonds through an intermediary and represent a basket of assets chosen by a professional. However, mutual funds are more actively managed by the investment company, while ETFs leave more autonomy to the retail investor.
Digital asset-themed ETFs attract attention
Furthermore, the survey stated that 48% of respondents globally counted on digital asset-themed ETFs. But the digital asset sector’s appeal varied geographically.
While crypto ETFs attracted 55% of the U.S. respondents, the European companies were more conservative in their portfolio allocations, and only 29% had high expectations from the sector. Notably, the cannabis industry saw a similar dispersion.
Despite a tumultuous market and value destruction, a quarter of respondents expect to allocate more of their portfolios to ETFs with cryptocurrency-related exposure, compared to 33% in 2022. Institutional investors are particularly keen, with 74% saying they are extremely/very interested in this strategy.
concluded the survey.
While high expectations from equity allocations stood at 49%, bullish expectations from the crypto sector amounted to 25% with little contrast geographically.
Also read: The U.S. Dollar Could Weaken by 10-15% By 2024.
Exchange-Traded Funds could balloon in the decade ahead
The BBH survey included over 325 companies globally, 40% of which had over $1 billion in assets under management (AUM). Half of the respondents had over 25% of their assets allocated into ETFs.
Shawn McNinch, Global ETF Head at BBH, confirmed the findings on the latest episode of the Trillions podcast.
ETFs are at the center of a lot of investors’ allocation strategies. More and more usage of ETFs. More and more asset classes, more structures. More than 60% of the respondents plan to increase their ETF exposure. There’s more demand for ETFs than ever before.
commented McNinch.
With $856 billion of inflows into ETFs in 2022, outflows from mutual funds topped $800 billion globally in 2022. However, 89% of investors plan to increase or maintain their ETF use this year. Management consulting company Oliver Wyman mirrored the findings, reiterating the heightened demand for exchange-traded funds.
The exchange-traded fund’s landscape is just embarking into the next stage of growth — this time fueled by the rise of active ETFs. By 2027, ETFs will account for 24% of total fund assets, up from 17% today.
read their “The Renaissance Of ETFs” paper.
The ETF rise is correlated to growing distress?
According to a shares report on ETFs in Q1, 2023, ETF volumes have historically tended to rise in periods of market stress. This is because investors increasingly use ETFs to allocate capital and manage risk.
“This is exhibited through an increased positive correlation between VIX Index levels and U.S. ETF trading volume as a percentage of total U.S. equity volume,” commented the report. Notably, the mentioned VIX index is a gauge of investors’ volatility expectations.
The correlation is understandable, as many investors seek more secure investment methods. They eliminate a portion of the associated risks and pay fees instead. Thus, the ETFs still allow them to dive into more creative and risky assets, such as cryptocurrencies, while maintaining a balanced portfolio.
