Giving Thanks in the ETF Industry

There is a lot to be thankful for in the ETF industry in 2022 despite global equity and bond markets remaining under pressure from high inflation and the aggressive actions of central banks that could result in prolonged economic weakness.  U.S.-listed ETFs Already Gathered More Than $500 Billion in Assets.While mutual funds continue to bleed assets, 2022 should end up being the year with the second-highest ETF industry net inflows. Advisors and end clients have embraced the ease of use, liquidity, tax efficiency, and typically low costs that ETFs offer relative to mutual funds. Investors put $365 billion into equity ETFs as of mid-November, while redeeming approximately $335 billion from equity mutual funds, consistent with intermediate-term trends. ETFs like the iShares Core S&P 500 ETF (IVV A) and the Vanguard Total Stock Market ETF (VTI A) continued to gather significant assets in 2023. However, bond mutual fund investors have been much more loyal over the years, which is why the $475 billion that have been pulled from fixed income mutual funds in 2022, in stark contrast to the $165 billion that was moved into fixed income ETFs, came as such a surprise. This year is likely to be one of the worst years (if not the worst year of all) for the Bloomberg Aggregate Bond Index, a key benchmark used for core fixed income mutual funds. While some active mutual funds have performed better, many advisors and clients have chosen to shift to ETFs, where interest rate sensitivity can be better controlled. Indeed, short-term ETFs like the iShares 1-3 Year Treasury Bond ETF (SHY A-) and the SPDR Bloomberg 1-3 Month T-Bill ETF (BIL B+) have been among the more popular products. I am thankful that advisors have stayed the course and/or protected the downside to keep clients investedMore Well-Established Asset Managers Have Embraced ETFs.While in the recent past, firms like Goldman Sachs, JPMorgan, and T. Rowe Price pushed into the ETF market, this year many of the holdouts joined the party. For example, Capital Group, the firm behind American Funds, launched its first nine ETFs, including the Capital Group Dividend Value ETF (CGDV ), which organically gathered $1 billion in assets. Meanwhile, firms like AllianceBernstein, DoubleLine, and Matthews Asia have rolled out the AB Ultra Short Income ETF (YEAR ), the DoubleLine Shiller CAPE US Equity ETF (CAPE A-), and the Matthews Asia Innovators ETF (MINV ), among others in 2023.  I am thankful that ETF-oriented advisors have more actively managed products from firms they have long trusted.Advisors Have Been Willing to Try Working With Lesser-Known ETF Providers.The previously mentioned new entrants joined a relatively concentrated ETF market with BlackRock, Vanguard, and State Street Global Advisors managing 78% of ETF assets at the end of October. While I don’t begrudge the big three their success, the ETF industry is more exciting when firms burst on the scene either with a successful new product or an under-the-radar fund gains unexpected traction.  For example, the Horizon Kinetics Inflation Beneficiary ETF (INFL B)) launched as the firm’s first ETF in January 2021 and was already managing $1.4 billion in assets across sectors such as energy, financials, and materials. The iMGP DBi Managed Futures ETF (DBMF B+) launched in May 2019 but had limited assets as of the end of 2021. However, the alternatives product gathered $1 billion alone in 2022 and has $1.1 in assets. I am thankful that there’s room for smaller providers to have a chance to succeed. Lastly, I am thankful to have joined the firm that became VettaFi in March 2022. I previously worked as the sole public-facing ETF voice in a broader investment research firm with smart people who were largely focused elsewhere.  Now I spend hours each day working with our skilled ETF-focused editorial team, our well-organized ETF-focused webcast team, our creative ETF-focused marketing team, our thought-provoking ETF and index research team, and many others that have a similar passion for educating advisors and end clients.  One of the ways we plan to support the investment community is with the Exchange conference in February 2023. If you have not signed up, you can save before year-end. You can thank me in person in Florida. For more news, information, and strategy, visit VettaFi.

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