Irish domiciled exchange-traded funds are set to double to $500 billion by 2020, as new investors seek to integrate them into their portfolios and fund sponsors continue to introduce more products.

According to a report from PwC, Ireland is already host to some $250bn in ETF assets, but it has the potential to double this by 2020.

However, while Ireland has been at the forefront of ETF growth, Andrew O’Callaghan, PwC European ETF leader, warned that there are challenges ahead.

“In order for Ireland to continue to succeed we need to stay competitive, have an even greater focus on innovation, continue to develop our skills and ensure that our regulatory and tax environment is conducive to business. Ireland is in a good position to achieve this growth and the strategic priority for Government is at the heart of making this happen,” he said, adding that it will be important that “industry continues to work with Government in a co-ordinated fashion when we go to market abroad.”

Globally, the report, ETF 2020: Preparing for a new horizon, which surveyed executives from 60 ETF sponsors, asset managers and service providers around the world that account for over 70 per cent of global assets, reveals more than three out of four executives expect ETF assets to at least double, to reach $5 trillion or more by 2020.

Institutional investors are widely expected to be the primary growth driver with insurance companies, pension plans and hedge funds in particular, projected to be significant sources of demand for ETFs.

Another driver of growth will be regulatory forces. In Europe, MiFID II and Retail Distribution Review (RDR) are set to ban the use of commissions by independent financial advisors, which to date worked against ETFs in the retail market.

Going forward, active ETFs are expected to be a source of significant growth in Europe. According to PwC, more streamlined operations to facilitate the cross-listing and settlement could make European ETFs much more attractive and cost effective.