Jhe exchange-traded fund industry is getting an injection of new and old blood as some of the world’s top fund managers see an opportunity in the expanding universe of ETFs.
For example, investment firms Neuberger Berman, Morgan Stanley, SEI and Matthews Asia, which together account for $3 trillion in assets under management, have jumped on the ETF bandwagon, signaling the launch or their intention to launch their first ETF offering, the Financial Times. reported.
More recently, Putnam Investments also planned to add its first fully transparent ETF alongside its existing non-transparent ETF offerings, according to a separate Financial Times report.
The recent group of fund managers to enter the ETF space follows other financial industry heavyweights like T. Rowe Price, Dimensional Fund Advisors and Federated Hermes who have embraced the ETF mantra in their bid to gain share market at the expense of traditional mutual funds.
The renewed interest in ETFs may be partly due to the increasingly competitive landscape, as fund management fees continue to fall further and further. Many actively managed traditional mutual funds are under increased scrutiny from investors due to continued underperformance and high management fees on top of their low returns. On the other hand, the more efficient structure of ETFs has made them a cheaper investment tool, especially when compared to the hands-on approach of traditional mutual funds.
“While we believe mutual funds will continue to provide benefits to many investors, we have seen growing interest from financial intermediaries and end investors who want to take advantage of the benefits offered by active ETFs,” said Jonathan Schuman, global head of distribution at Matthews Asia. , told the Financial Times.
As a result, in the United States, ETF assets jumped 185% to $7.2 trillion in the five years ending in 2021, according to the Investment Company Institute, while mutual fund assets increased by 65% over the same period. Meanwhile, ETF assets have more than tripled globally to $10.1 trillion since 2015, according to consultancy ETFGI.
“If you’re talking about meeting clients where they are, the ETF tool is the one we want to offer in addition to our other offerings,” said Noel Archard, global head of ETFs and portfolio solutions at AB, at Financial Times.
Recent converts to the ETF industry also pointed to the SEC’s decision in 2019 that helped streamline the approval process for ETF exemption applications.
“It lowered one of the barriers to entry for many companies that were considering getting into ETFs,” Archard added. “We have a predominantly active footprint. This rule change prompted further consideration of whether we should introduce [active ETFs].”
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