While institutions typically have been slow to adopt ETFs, MERS is "diverging from the pack here and it's great to see," said Daniil Shapiro, director, product development at Cerulli Associates.
MERS began using ETFs in 2019 when it was implementing a new, more dynamic asset allocation strategy that tilts the portfolio based on asset class valuations, Van Gilder said.
"I was really the main proponent of getting into ETFs," he said, adding that MERS started investing in a handful of fixed-income ETFs in 2019 and expanded its use of them significantly during the first quarter of 2020 amid market volatility triggered by the COVID-19 pandemic "because, in fixed income, that's where the liquidity was."
What happened in 2020, "was certainly validation I think for ETFs as a whole and specifically for fixed-income ETFs," Van Gilder said.
So, what does he think the next 50 years will bring for the ETF industry?
"Fifty years is quite a long time to project for sure, but I'm comfortable that (in) the next five to 10 years that the growth will still be significant," he said, adding that he expects fixed-income ETFs to grow even faster than equity offerings because fixed-income ETFs' share of the total fixed-income market is low relative to the penetration already seen in equities.
"We're seeing a number of new fixed-income ETFs come to market and the growth there looks like it'll be pretty strong," said Van Gilder, who also expects growth in alternative ETFs, where investors can get exposure to strategies such as managed futures and other strategies typically associated with hedge funds.
"We haven't really invested in a true alternative ETF yet, but those are certainly something we're watching," he said.
BlackRock, the world's largest asset manager, also expects fixed-income ETFs to grow. In a July LinkedIn post, Salim Ramji, senior managing director and global head of iShares and index investments at BlackRock, said fixed-income ETF assets globally had crossed the $2 trillion asset mark. With ETFs still just 2% of the total bond market, "we believe the fixed-income ETF market will reach $6 trillion by the end of the decade," Ramji said in the post.
BlackRock is the largest ETF manager in the world, growing the iShares ETF franchise to $3.12 trillion in assets under management as of Sept. 30 from nearly $500 billion when it acquired Barclays Global Investors in December 2009.
When Deborah Fuhr, managing partner, founder and owner of ETFGI, first became involved with ETFs back in 1997, there were 21 ETFs with assets totaling $8 billion, she said. Recently, ETFGI, a London-based research and consulting firm launched in 2012, reported that assets invested in the global ETF industry had reached a record $10.86 trillion at the end of July.
"So, I personally have lived through a huge revolution," Fuhr said.
Looking ahead, the next 50 years will likely bring fresh innovation, "such as we've seen how KKR has tokenized exposure to a private equity fund," she said.
Securitize, a digital asset securities firm, announced the launch of a fund tokenizing an interest in KKR's Health Care Strategic Growth Fund II on the Avalanche public blockchain, in a September 2022 news release.
The new Securitize fund marked the first time that exposure to one of KKR's alternative investment strategies was offered in a digital format in the U.S., the news release said.
Still, Fuhr doesn't see tokenization as a threat to the ETF industry.
"I think that ETFs are a technology evolution that is an advancement over a mutual fund," she said. "I see tokenization more likely providing exposure to things that can't be in an ETF, so therefore it's additive as opposed to taking away from ETFs."
While Fuhr believes that mutual funds will continue to exist 50 years from now, "I do think that assets in ETFs will be larger," she said.
"Right now, they're dwarfed by the mutual fund industry globally," Fuhr said. "So, I would say they're going to be bigger, I don't know how much bigger."
Anna Paglia, managing director and global head of ETFs, indexed strategies, separately managed accounts and models at Invesco, said while she doesn't know exactly where ETFs will be 50 years from now, "I can tell you that I don't think that this market is going to hit the brakes, take a breather or go in reverse."
Institutional investors are "starting to make more and better use of ETFs within their portfolios," she said. Among factors contributing to an acceleration of the adoption of ETFs by institutional investors is that the strategies coming to market now are filling "significant gaps," Paglia said. ETFs are becoming "more and more tailored" to be used as building blocks in portfolios and there is growing awareness among institutions of the added value such products can bring.
"So, we are living right now in the middle of an institutional revolution when it comes to ETFs, and to me, the next 10 years or 15 years are only going to accelerate that," she said.
Prior to the pandemic, Paglia said she used to get a lot of questions about the liquidity of fixed-income ETFs.
"There was always a huge debate about what is going to happen if there is a crunch and the market for bonds, the market for fixed income becomes illiquid," Paglia said. "Is the ETF going to fold?"
The ETF industry has been "very bullish" about ETFs' liquidity, "and the pandemic really proved it," she said.
Michael Crinieri, global head of exchange traded funds at Goldman Sachs Asset Management, said he's been involved with the ETF industry for almost as long as it's been around.
"I've kind of grown up with the ETF industry, so it's been really fascinating for me to kind of see how it grew from SPDRs in 1993 to WEBS, which I launched in the mid-'90s when I was at Morgan Stanley (and) which later turned into iShares," he said. "And so, it's been great to see the whole evolution."
Crinieri expects that the ETF industry will continue to grow and innovate, "and I think we'll see more and more institutional (investors) and specifically pension funds using ETFs for various reasons," he said.
"It's interesting, we've seen pension funds being very active with ETF issuers in helping create content and then in many cases they're seeding these new ETFs," Crinieri said. "And that's kind of a theme that we're seeing more and more frequently."
GSAM has worked with investors who have either seeded an ETF or bought shares shortly after it launched, he said.
"We've done it with both pension funds as well as other institutional investors," Crinieri said.
He declined to provide specific names, but cited a U.S. corporate pension fund and a European sovereign wealth fund as two examples.
Vanguard Group also sees continued growth ahead for ETFs, according to Dan Reyes, global head of portfolio review department at Vanguard.
"We're generally not in the business of prognosticating on industry growth decades into the future," Reyes said. "But suffice to say, we think adoption of ETFs is still in its relatively early stages."
Vanguard's ETF assets under management globally totaled $2.3 trillion as of Aug. 31, a Vanguard spokesperson said.
