The exchange-traded funds market is predicted to hit $5 trillion by 2020, with institutional investors tipped as the main drivers of growth, said two separate studies.
PricewaterhouseCoopers said in a report it expects the ETF market to grow 6% per year, at least doubling by 2020 from the current $2.6 trillion market.
The consultant surveyed 60 ETF sponsors, money managers and service providers, and three out of four executives agreed with the forecast.
PwC said institutional investors are widely expected to be the primary global growth driver with insurance companies, pension funds and hedge funds projected to be significant sources of demand. Changes to the defined contribution market are also expected to drive interest in ETFs. Starting in April, U.K. savers will no longer be required to purchase an annuity with their DC plan assets.
A separate study conducted by Greenwich Associates found institutional investors that use ETFs across continental Europe and the U.K. allocated on average 7% of their total assets to the investment vehicles.
With money managers, the average allocation is 11% of total assets, although almost one in 10 of European money managers allocate more than 25% of total assets to ETFs. Three-quarters of money managers using ETFs use them in relation to institutional clients.
Most of the pension fund users in the ETF study by Greenwich Associates said their allocations were between 1% and 10%, with one in five pension funds using ETFs holding 11% to 25% of total assets in ETF allocations.
About 28% of public and industry pension funds in Europe use ETFs, vs. 19% of corporate pension funds.
For insurance companies, the average allocation is between 1% and 10%.
Greenwich Associates expects to see an increase in ETF allocations by institutional investors, with much of the expansion allocated to equity ETFs.
The study also showed that European institutional investors use ETFs at a slightly higher rate than those in the U.S. While 24% of European investors allocated to ETFs in 2013, and 25% in 2014, usage was 21% for U.S. investors in 2013, the most recent data available.
The Greenwich study covered 120 Europe-based institutional investors. Of those investors, 69% allocated to ETFs. Respondents were made up of 57% pension funds, 25% money managers and 18% insurance companies.
