The assets of index-tracking, low-cost funds are set to surpass those very different beasts of the investment jungle - hedge funds - as soon as the middle of 2015.

The world’s market for exchange traded funds and exchange traded products will overtake the hedge fund industry in asset terms by the second half of this year, according to etfgi.com, the research firm.

ETFs are typically open-ended, index-based funds, with active ETFs accounting for less than 1 per cent of the market. They can be bought and sold like ordinary shares on a stock exchange and offer broad exposure across developed, emerging and frontier markets through equities, fixed income and commodities. Exchange traded products are similar to ETFs in some ways but do not use an open-end fund structure.

Assets in the ETF/ETP industry reached a record of $2.926 trillion at the end of the first quarter of this year, while assets in the hedge fund sector, based on data from Chicago-headquartered Hedge Fund Research, reached a record of $2.939 trillion.

The market for index-tracking funds, which are typically low-cost and designed to replicate broader market performance rather than to beat it, has surged in recent years. Investors seeking cheap and efficient exposure to markets have flocked to the industry.

There have been some headwinds, however, amid concerns that more complex ETFs, such as those replicating leveraged strategies, or those mimicking ETF returns through use of swaps, could expose investors to particular risks. As for hedge funds, this sector has been buffeted by the 2008 financial crisis and criticisms that too few of them add value to justify their relatively high fees.

“We expect assets invested in the global ETF/ETP industry will surpass assets in the global hedge fund industry during this quarter. Many people will find it surprising that the global ETF/ETP industry, which just celebrated its 25th anniversary on 9 March, has been growing at a faster rate than the global hedge fund industry, which has existed for 66 years,” etfgi.com said in a commentary.

Assets in the ETF/ETP industry have been gaining on those invested in the hedge fund industry with the difference narrowing from $230 billion at the end of 2013 to just $13 billion at the end of the first quarter of 2015.