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In today’s investment landscape, it is difficult not to notice the global popularity of Exchange-Traded Funds (ETFs). First introduced in the 1990s as a specialized investment alternative, ETFs have grown to become one of the most well-liked and revolutionary product developments in the Asset and Wealth Management (AWM) sector.
Over the past five years, the global ETF market has gained phenomenal momentum, further accelerated by the COVID-19 pandemic, highlighting its resilience and growth potential.
Having navigated the market uncertainty and volatility of 2020 and 2021, ETFs are emerging stronger than ever, supported by a surge in fund inflows, new entrants, and product innovation. Global ETF Assets Under Management (AUM) then quadrupled from USD 3.4 trillion in 2016 to almost USD 10 trillion by November 2021, demonstrating this growth.
But can this remarkable growth be sustained over the upcoming years? What are some opportunities and challenges that lie ahead for the ETF market? In this blog, let’s explore the future of ETFs and the anticipated leap forward in 2026.
[wd_hustle id="4" type="embedded"/]NOTE: The following findings result from a comprehensive survey conducted by PwC on ETF projections by 2026, gathering insights from 60 executives who collectively manage over 80% of global ETF assets. The findings revealed that 58% of respondents anticipate global ETF assets under management (AuM) to reach USD 18 trillion or more by 2026. Additionally, 84% expect online platforms to be the primary source of future ETF demand.
#1 Growth Projections
The rapid growth of ETFs in recent years is expected to continue. Over half of the survey respondents believe global ETF Assets Under Management (AUM) will reach at least USD 18 trillion by 2026, representing a 14.6% CAGR from June 2021 to June 2026.
Source: PwC
However, considering the 22% growth over the past five years, record inflows, new entrants, innovative products, and distribution opportunities, the projection is that global ETF AUM could exceed USD 20 trillion by 2026, reflecting a 17% CAGR.
#2 Product Trends: Differentiation Through Innovation
Historically, ETFs have been viewed as passive investment models tied to market indices. However, the market is evolving to become more active, diverse, and innovative. While equity and fixed-income products remain dominant, the rise of thematic ETFs, active ETFs, and crypto ETFs creates new investment opportunities and increases customer choice.
Many respondents expect heightened demand for these innovative strategies in the upcoming 2-3 years.
#3 Distribution Trends: The Digital Ride
The pandemic has accelerated the shift towards robo-advice and online platforms, reducing the reliance on face-to-face adviser interactions. Digitizing ETF distribution can lower costs, improve accessibility, and attract new investors, particularly in less developed markets like Asia-Pacific and Latin America.
Survey participants highlighted growing demand from online platforms, financial advisers, and retail investors over the next 2-3 years. Expansion into new markets is a key opportunity, with strategies including setting up locally domiciled ETFs and partnering with local managers to launch new ETFs.
Bottom Line
PwC’s survey underscores the optimistic outlook for ETFs, with projections of significant growth, product innovation, and digital distribution trends by 2026. As the market evolves, the anticipated leap forward promises new opportunities and challenges, setting the stage for ETFs to further solidify their role in global investing.
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