Goldman Sachs has a comprehensive look at the publicly traded asset managers out this morning that I’ve been poring over. In this post, we’ll look at their argument for why the ETF industry, now managing $3 trillion, will see a doubling of assets under management by 2020.
Goldman’s analysts lay out their outlook for the ETF space in three charts. In the first, they look at the annual mid-teens percentage growth rate and explain the driving forces that will keep it there going forward – from the coming wave of 401(k) rollovers to the industry changeover from wirehouse brokers (who favor mutual fund products with high fees) to RIA fiduciaries (who favor exchange-traded products with low fees):
In the second chart, GS notes that of the $740 billion they expect to flow into ETFs in the next decade, approximately $440 billion will be the result of 401(k) accounts becoming IRAs with more product flexibility, with the remainder a result of assets leaving the Merrills and Morgans and finding a home with independent advisors in the RIA channel:
Lastly, Goldman looks at areas within the exchange-traded product universe with the fastest growth rates and biggest potential. These include smart beta (or rules-based quant) products, a burgeoning popularity for ETFs domiciled outside the US (ie: European ETF usage is finally catching on) as well as fixed income, which only has half the share of assets relative to the mutual funds in the space that equity ETFs enjoy (10% vs 20%):
Josh here – The implication is that the asset management firms with compelling products for these growth opportunities (WisdomTree, BlackRock, Invesco) will disproportionately reward their shareholders as The Street prizes average fee growth over average AUM growth.
Not all growth is created equal
Goldman Sachs – June 7th 2015