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In the 30-year history of exchange-traded funds, it would be difficult to find a year like 2022 in terms of market share momentum and significant events across the asset management category.
From asset flows out of mutual funds and into ETFs, to mutual fund-to-ETF conversions and the oddball emergence of single-stock ETFs, the liquid, low-cost, tax-efficient ETF wrapper has notched a lot of wins this year.
“In a down year for equity and fixed-income markets, investors are increasingly comfortable with the ETF structure and asset managers are embracing that trend as a way of keeping assets in the fund company,” said Todd Rosenbluth, head of research at VettaFi.
He cited the success of Capital Group, which moved its popular American Funds brand into the ETF space in 2022 and quickly attracted $5 billion.
“That is a sign investors are willing to look beyond the power three of Vanguard, BlackRock and State Street for ETFs,” Rosenbluth added.
At roughly $6 trillion, ETFs are still overshadowed by the $20 trillion mutual fund space, but the momentum is clearly with exchange-traded funds. By October, mutual fund outflows had topped $740 billion and were on track to double a record set in 2020.
One contributor to the flow trend is mutual fund-to-ETF conversions, which have gained steam since first being permitted by regulators in 2021.
Fidelity Investments is among the fund companies taking advantage of conversions, with a November announcement that it was converting six thematic mutual funds into transparent ETFs.
Another mark in the win column for ETFs in terms of momentum is the creation of single-stock ETFs, which first hit the market in July to muted interest from financial advisers. But in typical ETF fashion, the creative new twist is proving stubbornly determined to succeed.
Single-stock ETFs almost immediately drew red flags from regulators related to the risk of investor misuse and confusion, but providers insist the market is there.
“We started this whole thing by launching these in Europe almost three years ago,” said Will Rhind, founder of GraniteShares. “Single-stock ETFs are just an evolution of the industry.”
Even semitransparent ETFs, which could be counted as a miss for the ETF space, are looking like a win in the long run.
After a much-anticipated debut in early 2020 was overshadowed by the Covid pandemic, semitransparent ETFs basically faded into the woodwork.
But what the semitransparent effort did was expose an investor appetite for fully transparent active ETFs, while helping asset managers get more comfortable with the idea of full transparency.
“There’s just something strong about being transparent and there’s something that seems weak about being nontransparent,” said Eric Balchunas, fund analyst at Bloomberg Intelligence.
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