BMO forecasts ETF assets to grow to $10 trillion by 2023

Jan 31st, 2018 | By | Category: ETF and Index News

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BMO Global Asset Management has released its annual ETF Outlook Report looking at some of the themes powering the ETF industry in the coming year, including fixed income, thematic investing and ESG. Also in the report is a forecast for the global ETF industry to grow to $10 trillion in assets under management by 2023.

BMO highlights key ETF themes from 2017

BMO expects assets under management in the global ETF industry to reach $10 trillion by 2023.

Looking back at 2017, the firm notes there was an increased demand for fixed income ETFs, which it attributes to the liquidity, transparency and diversification benefits that ETFs provide to an over-the-counter asset class.

Using ETFs to adjust interest rate risk in portfolios was a top priority over the course of the year, ,says BMO, as investors sought to manage the macroeconomic environment of rising interest rates and a flattening yield curve.

The extremely popular FAANG stocks (Facebook, Apple, Amazon, Netflix and Google) were fundamental drivers of market growth in 2017 and pushed indices to new highs. Their impact on equity markets has encouraged index providers to reconsider sector classifications, notes BMO, with the telecommunications services sector set to expand and be renamed communication services, and some consumer discretionary and technology stocks will relocate to this new sector.

The firm notes that the impact on these future sectors will be most felt by the removal or addition of some of the heavy-weighted FAANG stocks, potentially impacting ETFs that track the information technology, consumer discretionary and telecommunication sectors, which will, in turn, affect ETFs that track the information technology, consumer discretionary and telecommunications sectors.

With ongoing NAFTA discussions, oil prices rebounding and the ongoing central bank activity, BMO believes CAD/USD currency volatility will likely continue in 2018. With the continuing expansion of ETFs to include a greater variety of unhedged, full currency-hedged, or dynamically hedged ETF offerings, investors are being supplied more than ever with the tools to manage their desired currency exposures.

Lastly, BMO notes the growing industry trend towards investing in thematic ETFs as likely to continue well into 2018, highlighting in particular further developments in the cryptocurrency, artificial intelligence, and ESG spaces.

“The efficiency of ETFs resonates with investors; both as long term holdings and as tactical trading vehicles and we have seen increased acceptance of them across institutional, advisory and direct investors,” said Mark Raes, head of ETF business development at BMO Global Asset Management. “The array of ETF choices available to investors is now greater than ever. This industry growth has seen the emergence of new ETFs that transcend traditional equity and fixed income exposures, giving investors access to innovative market trends and complex derivative strategies.”

The report found that the global ETF market hit a record high of $4.6 trillion AUM at year-end 2017, having added over $649 billion in new inflows over the course of the year. Record levels of AUM and net inflows were also recorded in several regions and countries around the world during 2017, including in the US ($3.4 tn AUM; $465bn net inflows), Canada (CAD$145bn AUM; CAD$26bn net inflows), Europe ($762bn AUM; $102bn net inflows), and Asia Pacific ($61bn AUM; $437bn net inflows).

“We expect to see the ETF industry continue to grow and we project that by 2023, the global ETF industry will double to more than $10tn and the Canadian industry to grow even faster to CAD$400bn,” added Raes.

BMO Global Asset Management offers 95 ETF listings and has a market share of nearly 32% in Canada, according to Bloomberg data.

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