ETFs Transformed Asset Management

ETFs Transformed Asset Management

ETFs were first launched 30 years ago and were mainly in the domain of institutional money managers, a relatively humble beginning compared to where the ETF market is now, contends an article in Financial Advisor. They’ve moved far beyond a widely diversified approach and can now provide investors with an extremely narrow focus in a particular sector or theme, especially after the introduction of new products last year that have the ability to track derivatives on a single stock. Those kinds of products allow investors to hedge their portfolios against market slumps.

Actively-managed ETFs may have had the biggest transformation, with 902 funds launched in the last 6 years—80% of which were started in the last 3 years alone. Even in the midst of 2022’s bear market, active ETFs saw an increase of inflows in across almost all asset categories, with the domestic and global equity category gaining the most. Active ETF asset flows in those two categories skyrocketed to $70.9 billion, while actively managed mutual funds lost $926 billion in the same period, according to the article. So it’s not a surprise that Wall Street has rushed to reconfigure legacy mutual funds into ETF wrappers; more than $20 billion was converted by 13 different issuers last year, according to New York Stock Exchange data that is cited in the article, with at least that many issuers expected to convert another $20 billion in 2023.

Meanwhile, $3.1 billion poured into active ETFs in the alternatives category last year, triple the amount that flowed in the previous 5 years combined, with particularly strong demand for managed futures and real return strategies as investors and advisors tried to soften the blow of record-high inflation and interest rate spikes. And in the list of the top 10 ETFs of 2022, every single one was actively managed. JPMorgan Equity Premium Income ETF came out as the leader, followed by the JPMorgan Ultra-Short Income ETF and the Dimensional U.S. Core Equity 2 ETF. $21 billion flowed into just those three funds alone, the article reports.

As for what’s next for ETFs, the pool of investors who are buying into them is only deepening. And as the financial machine begins to shift towards more democratic ideals, appealing to more and more individual investors, that will undoubtedly transform the asset management business, the article portends.


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