ETFs are bigger than the hedge fund industry

A new development this week – the global ETF / ETP industry now has more assets than the entire hedge fund industry…

via ETFGI:

Assets invested in the global ETF/ETP industry have surpassed the assets invested in the hedge fund industry at the end of Q2 as we had forecasted.

According to our analysis there was US$2.971 trillion invested in the 5,823 ETFs/ETPs listed globally at the end of Q2 2015, assets were down slightly from their record high of US$3.015 trillion at the end of May 2015, while assets in the global hedge fund industry, according to a new report published by Hedge Fund Research HFR, reached a new record high of US$2.969 trillion invested in 8,497 hedge funds, which is US$2 billion smaller than the assets in the global ETF/ETP industry.

This is a significant achievement for the global ETF/ETP industry, which just celebrated its 25th  anniversary on March 9th while the hedge fund industry has existed for 66 years. Below is a chart which illustrates how the assets in the ETF/ETP industry have been gaining on the assets invested in the hedge fund industry, more notably since the financial crisis in 2008.

That was fast (relatively speaking). Interestingly, ETF assets are still small compared to mutual fund assets. This has a lot to do with the hegemony of broker-sold 401(k) plans that almost always include mutual funds, which allow for a trailing sales commission to be paid to the salesperson in perpetuity, regardless of how much or how little involvement they have with the plan’s investors once the sale is completed.

The tax efficiency of ETFs wouldn’t be of much use to the average 401(k) investor, however, because gains and dividends within the plan are not taxed. But the lower expenses that ETFs typically carry would be of great use to 401(k) investors – especially if they’re in some awful plan from ING or John Hancock that’s loaded with high-fee actively managed fund products that don’t work.

This too shall pass.

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