More than nine out of ten (92%) of senior hedge fund professionals expect to see an increased value of ETFs being used within their industry this year, according to research commissioned by European ETF provider Source.

Chris Mellor, executive director, equity product management at Source.

The survey, conducted by PollRight, involved interviewing 60 senior professionals working in the global hedge fund industry between 5-29 June 2017. It found that, on average, hedge fund professionals expect the value of ETFs used within their industry to rise to $55 billion by the end of this year with almost a fifth (19%) of respondents forecasting the actual number could be over $70bn. This represents between a 25% to 60% increase compared to the $44bn ETF assets under management used by the hedge fund industry in 2016, according to Deutsche Bank’s 2016 Guide to Institutional ETF Ownership. Furthermore, the study found that, on average, respondents expect the value of ETF assets used within their industry to hit $100 billion by early 2021.

The prime motivation cited for using ETFs in hedge fund strategies were low holding costs and management fees, according to two thirds (66%) of respondents. Other primary reasons include excellent liquidity (64%); easy access to sector exposure (46%); ability to trade on exchanges (46%); the growing choice of ETFs (42%); and flexibility over long and short positions (42%).

More than half (53%) of respondents said they believe greater numbers of hedge funds – especially smaller ones – will use ETFs to reduce their costs and fees, thereby becoming more competitive.

Chris Mellor, executive director, equity product management at Source, said: “Hedge fund managers are sophisticated investors and it is clear they are increasingly seeing the benefits that ETFs provide them, such as a cost-effective means to execute their strategies. We are seeing strong demand from hedge funds and expect this to escalate as ETFs play a progressively core role in investment strategies.”