How Big Is the Global ETF Market? (BLK, STT)

Total assets under management (AUM) in exchange-traded funds (ETFs) around the world reached $3 trillion at the end of the first quarter of 2016. Those assets were spread across more than 270 global providers and were listed on 64 separate exchanges throughout 51 countries, according to data from London-based ETFGI LLP.

It is clear that ETFs are no longer a niche product, if they ever were. These investment vehicles combine the intraday liquidity of stocks with the low-threshold diversification of mutual funds, and investors can deal with most of them at attractive round-trip costs. The majority of ETFs track an index and are passively managed, though the U.S. Securities and Exchange Commission (SEC) authorized actively managed ETFs in 2008. ETFs are also easily compared with competitor funds, which means you do not need an advanced securities license to understand them.

Plenty of experts believe ETFs will keep growing at a rapid pace. They first hit the market in 1993, but interest was only fledgling during the next 10 years. Between 2004 and 2013, the annual growth rate of ETF assets was just shy of 28%. By 2013, they were the largest exchange-traded product (ETP) in terms of AUM.

Worldwide, there was approximately $715 billion inside ETFs by December 2008. That was slightly lower than the figures in December 2007, thanks in large part to the wealth destruction that took place during the Great Recession and financial crisis. However, ETFs grew spectacularly from 2009 onward.

Worldwide ETF assets nearly doubled between 2008 and 2010, from $715 billion to $1.313 trillion. The figure was $2.254 trillion by 2013. By the beginning of 2016, total global ETF assets were valued at $3 trillion. To put ETF growth in perspective, the total growth of mutual fund assets between 2001 and 2014 was a cumulative 127%. ETFs grew by 2,279% over the same period.

The United States is the largest national domicile for ETFs, and the U.S. share of global ETF assets rose between 2008 and 2016. In December 2008, U.S. ETF assets were $498 billion, or roughly 69% of the world market. In 2013, U.S.-based ETFs managed $1.61 trillion, well enough for 71.5% of the world market. By May 2016, U.S. ETF assets were $2.15 trillion, also approximately 71.5% of global ETF assets.

The global ETF market is dominated by three providers: BlackRock Inc.'s (NYSE: BLK) iShares, Vanguard's ETFs and State Street Global Advisors’ (SSgA) SPDR ETFs. As of May 2016, nearly 70% of all global ETF and ETP assets were managed by these companies. No other provider managed even 3.5% of the global market.

iShares is the largest provider by a considerable margin with $1.16 trillion in AUM, or 36.9% of the ETF market. The iShares fund series launched in 1996 through Barclays Global Investors. BlackRock acquired Barclays in 2009, becoming the world’s largest asset manager in the process.

Vanguard, the second-largest ETF provider at $555 billion in AUM, only offered one-sixth as many funds as iShares. Vanguard is best known for its low-cost products. The SPDR ETFs from State Street Corp. (NYSE: STT) managed $466 billion in AUM. Only one other ETF provider, Invesco Ltd.’s (NYSE: IVZ) PowerShares series, managed over $100 billion in assets.

Institutional investors expect the global ETF market to double during the five years between 2016 and 2020, per research from Source UK Services Ltd., a European provider. When asked why ETFs would continue to grow so much more quickly than other investment vehicles, respondents cited ETFs’ lower costs, followed by an increase in available funds and additional ETF innovation.