ETFs鈥� AUM nipping at the heels of mutual funds
27 October 2015 Jersey City
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Domestic assets under management (AUM) for US exchange-traded funds (ETFs) have grown by 6.1 percent from August 2014 to 2015, according to a new Pershing report.
The report, What Lies Beneath: Understanding the Structure and Costs in ETFs, states that ETFs鈥� AUM has risen from $1.88 trillion in August 2014 to $1.995 trillion as of August 2015.
鈥淓TFs have a long way to go to match total assets of their mutual fund counterparts, PwC conservatively forecasts that global ETF assets will reach $5 trillion by 2020, nearly doubling its current levels of $2.7 trillion in less than five years,鈥� states the report.
In contrast, domestic assets for mutual funds fell by 1.6 percent in the same time period.
Total US mutual funds鈥� AUM dropped from $15.875 trillion to $15.627 trillion.
The report also analysed expense ratios for ETFs and mutual funds.
鈥淓TF expense ratios are generally less than those of corresponding mutual funds鈥�, the report stated.
鈥淥ne important reason,鈥� said Brian Brennan, vice president of global ETF product management at BNY Mellon, 鈥渋s the creation and redemption mechanism unique to ETFs.鈥�
鈥淭he cost of trading the underlying securities is borne by market makers who drive the primary trading of ETFs, rather than by the actual fund.鈥�
鈥淐onversely, a mutual fund bears the costs of trading its underlying securities itself.鈥�
鈥淏ut those costs don鈥檛 always stay low for long.鈥� Brennan pointed to 鈥渘uances鈥� in certain types of ETFs that are not included in expense ratios, which can quickly add up.
鈥淚t鈥檚 important to watch for those when considering more complex types of ETFs,鈥� he said, specifically mentioning leveraged and inverse ETFs, as well as master limited partnerships ETFs.
The report, What Lies Beneath: Understanding the Structure and Costs in ETFs, states that ETFs鈥� AUM has risen from $1.88 trillion in August 2014 to $1.995 trillion as of August 2015.
鈥淓TFs have a long way to go to match total assets of their mutual fund counterparts, PwC conservatively forecasts that global ETF assets will reach $5 trillion by 2020, nearly doubling its current levels of $2.7 trillion in less than five years,鈥� states the report.
In contrast, domestic assets for mutual funds fell by 1.6 percent in the same time period.
Total US mutual funds鈥� AUM dropped from $15.875 trillion to $15.627 trillion.
The report also analysed expense ratios for ETFs and mutual funds.
鈥淓TF expense ratios are generally less than those of corresponding mutual funds鈥�, the report stated.
鈥淥ne important reason,鈥� said Brian Brennan, vice president of global ETF product management at BNY Mellon, 鈥渋s the creation and redemption mechanism unique to ETFs.鈥�
鈥淭he cost of trading the underlying securities is borne by market makers who drive the primary trading of ETFs, rather than by the actual fund.鈥�
鈥淐onversely, a mutual fund bears the costs of trading its underlying securities itself.鈥�
鈥淏ut those costs don鈥檛 always stay low for long.鈥� Brennan pointed to 鈥渘uances鈥� in certain types of ETFs that are not included in expense ratios, which can quickly add up.
鈥淚t鈥檚 important to watch for those when considering more complex types of ETFs,鈥� he said, specifically mentioning leveraged and inverse ETFs, as well as master limited partnerships ETFs.
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