ETFs to overtake hedge fund AUM in 2014 – S&P Dow Jones Indices

Projections from S&P Dow Jones Indices suggest that if current trends continue, then the total amount of capital invested in ETFs will overtake the total invested in hedge funds in 2014.

Tim Edwards, director of Index Investment Strategy at S&P Dow Jones Indices said that the development is predicated on shifting attitudes among investors, who are increasingly seeking lower cost and more liquid investments.

“Hedge funds search relentlessly to deliver on a promise of alpha while their privileged investors – supplying notoriously high fees and the tactical burden of illiquidity – hope to gain advantage from partnering with the 21st century’s investment titan,” Edwards said.

“Once the darlings of the asset management industry, hedge funds are seeing their pre-eminent status challenged by a diametrically opposite segment of the investment spectrum, as the cheap, liquid and transparent value proposition of ETFs continues to attract substantial investment from across the globe.

“Appropriately perhaps for an infamously opaque industry, official estimates of total hedge fund assets vary wildly. So it is hard to say conclusively how much money exactly is invested over all. Taking the numbers from BarclayHedge (who provide one of the highest recent estimates and freely provide data back to 2000) it looks as if total ETF assets are on course to break above total hedge fund assets early in the New Year. Indeed, as these numbers are somewhat delayed in any case, they may have already done so.

“Of course, that is not to say that the role of hedge funds is fundamentally challenged. Indeed, in aggregate they continue to attract new investor capital. But with the search for alpha becoming ever harder, it’s only surprising that it has taken so long for ETFs to gain the larger share of the pie.”

Data from BlackRock and BarclayHedge cited by Edwards point to a cross-over point somewhere around the $2.5trn AUM level.

 

Lausanne    

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