Why do they continue to attract investors so much?

2023-10-09 01:00:27

ETF: strong growth on a global scale

Given the rapid growth of ETFs, the question that needs to be asked is: will this growth continue? The latest study carried out by the audit and consulting firm PwC, entitled “ETFs 2027 : a world of new possibilities”, seems to point in this direction. The study surveyed more than 70 executives from around the world, the majority of whom were ETF providers or managers. Their estimates for global ETF volume in 2027 range from $11 trillion to over $18 trillion, with an estimated average of around $15 trillion.

France : a special case

The main growth potential of ETFs lies in their appeal to private investors. In Europe, institutional investors still dominate the market. So, to grow the popularity of ETFs, providers need to raise awareness of their benefits. Digitalization also has a role to play and might help reduce costs, and therefore break down the barriers blocking new investors. Thus, ETFs might become interesting for new investor profiles. France, in particular, is considered a market with strong growth potential, particularly due to the exponential rise in interest in ETF savings plans, as well as the trend for investments in capital markets. .

More active, thematic and sustainable ETFs

Large companies are expanding their product range by using their expertise to develop active, thematic and sustainable segments, called “ESG ETFs”. Active ETFs, in particular, are expected to see significant growth in demand over the coming years. They provide the opportunity to access a wider range of investment strategies, including those not traditionally available through traditional exchange-traded funds. These hybrid products will be interesting for investors wishing to benefit from the expertise of active portfolio managers, while benefiting from the liquidity and transparency offered by ETFs.

The reaction of private investors

It remains to be seen, of course, whether the previously stated growth forecasts will materialize. One thing is certain: the arguments made by most ETF providers regarding ETF growth are entirely plausible. However, it is important to keep in mind that things might develop differently. Investors in financial markets tend to be shy by nature, particularly in the retail sector. And when the stock market shakes, the repercussions are immediate, and the savings account once once more becomes the most popular alternative. And in the event of tremors, the ETF sector will not be spared.

The constant increase in available products, notably through new thematic investment strategies, will not have the effect of triggering an increase in demand. On the contrary, investors risk feeling destabilized because they will lose their peripheral vision. And if they reflexively turn to their bank advisor, ETF sales will absolutely not be favored. In addition, the distinction between traditional active funds and passively managed ETFs is losing its clarity, particularly due to the complexity and costs of active ETFs. Finally, it will be a question of knowing whether thematic or active ETFs perform better than traditional index funds in terms of return and risks over the long term.

New entrants to the stock market are growing the market

A YouGov study commissioned by the American asset manager BlackRock and covering 14 European countries including France showed that It is mainly new investors who are driving the growth of the European ETF market. Their numbers will continue to increase in the future as they find ETFs particularly attractive due to their ease of market access and low costs. But despite this increase, efforts still need to be made: on a global scale, assets managed by ETFs represent only a fraction of the financial market. In Europe, only 4.1% of equity assets are held through ETFs. This is enough to see a good margin for progress at a time when mentalities regarding savings are changing, particularly in France.

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