The head of a $1 trillion ETF provider shares a bold prediction for the record-shattering industry

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crystal ballReuters / Andy Clark

  • The $4.5 trillion exchange-traded fund industry is shattering all sorts of records for growth.
  • Martin Small, the head of BlackRock iShares for the US and Canada, has a bold prediction for the industry.

How did we ever live without them?

That's the first line of the annual investor letter from Martin Small, who's responsible for more than $1 trillion as the head of BlackRock iShares for the US and Canada. And it raises a question many people have been asking themselves about exchange-traded funds.

Small would seem to have a point. With the global ETF industry growing beyond $4.5 trillion for the first time in 2017 - including $1.8 trillion in assets under management for iShares, the world's biggest provider - the hottest investment vehicle around is more everpresent than at any other point in history.

Which is why Small feels comfortable making a bold prediction: by 2020, half of US investors will have made ETFs an "integral part of how they build portfolios."

If that seems far-fetched, consider that one-in-three US investors already owns at least one ETF, according to a survey conducted by iShares. But where is the growth coming from?

martin smallETF.comMartin Small, head of US iShares at BlackRock.

"The people who are already in ETFs are just going deeper," Small told Business Insider by phone. "And there are people coming from single securities and high-priced products into ETFs."

In the US market alone, ETFs saw combined assets climb to more than $3.6 trillion in January, a roughly $1 trillion year-over-year increase, according to Investment Company Institute data.

A big part of that 12-month increase stems from an increased profile for ETFs, a wider range of offerings, and record-setting market performance that investors were fearful of missing.

"2017 was a real breakout year, the first one where we really started propelling towards seismic change," Small said. "Maybe in five years, people will look back at my letter and marvel at the fact that we used to do it another way."

A great deal of interest in iShares ETFs has come from overseas, as indicated by the $201 billion that global investors poured into US iShares funds in 2017, according to BlackRock data.

The firm is also reaching a younger audience, as evidenced by a survey of more than 1,000 people conducted by iShares in January. They found that roughly 42% of the millennials surveyed own ETFs, up from 33% last year, the biggest jump of any category. Further, 85% of millennials surveyed said they were planning to buy ETF exposure in the next year.

But perhaps most importantly of all, Small notes ETFs have given people a sense of comfort and clarity in an increasingly complex investment landscape:

"All the academic research and investment techniques that people put in opaque or non-transparent wrappers have been demystified thanks to the transparency of ETFs," said Small. "That's why we like to ask: How did we ever live without them?"

Read the full BlackRock iShares investor letter here.

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