SINGAPORE - Since they first hit the market two decades ago, Exchange-traded funds, or ETFs, have won investors over with their ability to be traded like stocks, portfolio transparency and lower fund costs compared to mutual funds.

ETFs now hold over US$2.6 trillion ($3.491 trillion) of assets globally, and that number is set to reach US$5 trillion ($6.714 trillion) or more by 2020, according to a new report out Tuesday.

The report by consultant PwC surveyed executives from 60 ETF sponsors, asset managers and service providers around the world, and found that more than three out of four executives expect ETF assets to at least double 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 globally, said the report.

In Singapore, as in Hong Kong, ETF providers are dominated by large global ETF sponsors.

ETFs have grown far beyond their initial function of tracking large liquid indices in developed markets, said PwC, and new types of indexing - also referred to as "smart beta" - represent a hotbed of product development activity.

Some 46 per cent of firms surveyed identified "smart beta" as the most important area of innovation, while actively-managed ETFs and alternatives are also expected to be sources of growth.

In Asia however, the traditional passively-managed ETF remains a major growth opportunity in a market which is still relatively young, said the report.

Meanwhile, the biggest risk to ETF providers seems to be policy risk. Some 91 per cent of respondents believed that regulation and taxes impact ETF growth. New regulations could also dampen demand if new tax rules make ETFs less tax efficient, said PwC.