ETF growth means AUM will top $2 trillion by 2011

The global trend of growth in exchange-traded funds (ETFs) looks set to continue, spurred by a rise in institutional investor participation and geographical growth.

The number of institutional investors with at least one US-listed ETF has grown by 345% over the last seven years, with the number of institutions investing growing from 448 in 2000 to 1,993 in June last year, according to a report released last week by Morgan Stanley.

In the same report, it is claimed there has been a 61% increase in hedge fund participation in the market alone. A growth in the popularity and scope of the European ETFs has been driven by the Undertakings for Collective Investment in Transferable Securities (UCITS) III regulations, which govern pan-European marketing of funds and open them up to retail investment.

Under the latest regulations, mutual funds can invest up to 20% of their funds in a single other UCITS fund, where previously they were limited to 5% of their assets. In addition, UCITS funds have been expanding into new markets, with Korea and Singapore cross-listing ETFs that are UCITS funds from Europe onto their domestic platforms. Investors outside Europe can therefore invest in EU-compliant funds. Given the range of growth so far, the Morgan Stanley report estimates that total assets under management in ETFs will exceed $2 trillion across all ETFs by 2011.