The booming ETF industry could become 10 times bigger in the next decade and top $50 trillion, according to Bank of America.
Just to put things in perspective, that would be more than twice the current size of the U.S. economy. Total assets for ETFs listed in the country have grown an average 25% annually in the past 10 years to $4.3 trillion, according to a research note from BofA. At this rate, the bank projects an extra $1 trillion increase next year alone.
Passive strategies such as ETFs are benefitting as investors bail on active managers after years of underperformance. One of the major drivers of strong growth is the “increased awareness” of advantages including tax efficiency, low cost, liquidity and transparency, BofA said. Stable interest rates, expectations for positive equity returns, and tight credit spreads could also act as a bolster next year, according to the bank.
“There’s less performance chasing than you saw in the past, and that’s a positive thing,” an expert says.
BofA’s $50 trillion call is one of the highest projections for the growth trajectory of ETFs, although the time frame spans five more years than other estimates. Jim Ross, one of the founders of the industry, said last year that assets could reach $25 trillion globally by the end of 2025. State Street’s Matteo Andreetto had an even lower prediction — $15 trillion for that same year — when he worked as the CEO of Deutsche Boerse’s Stoxx in 2018.
