ETF TV News: Active ETFs thriving as issuers battle for new ground

Dan Barnes Welcome to ETF TV News, I’m Dan Barnes. We’re going to be discussing the latest exchange traded funds and products issued over the past week with Deborah Fuhr. Deborah. Welcome back to the show.

Deborah Fuhr Thank you.

Dan Barnes So tell us, if we look at the new products that we’ve seen come out. What sort of jurisdictions have they been issued in? What sort of trends have they been following?

Deborah Fuhr So last week you saw 22 new products come to market. It was really led by the US, which accounted for 18. Then we saw two in Israel and two in China. I think if we look at the themes, we’ve seen a real interest in active ETFs which account for 18 of the new launches. And then if we look at the types of ETFs coming to market, it has stayed with those themes we’ve seen over the course of the year, which would be a bit of ESG, definitely thematics, disruptive technology. We’ve also seen some more fixed income ETFs come to market. I think when we look at it, there’s 12 issuers, so in many cases, it’s smaller and newer firms coming to market, which isn’t surprising, right? So we don’t have any of the larger kind of dominant players launching products. Last week, I think we saw a lot of firms that decided to try and get something into the market before the end of the year.

Dan Barnes Why do you think firms are looking to issue actively managed ETFs, rather than just those sort of big passive funds?

Deborah Fuhr A lot of the asset managers around the world are active managers, and so they’re trying to embrace the ETF wrapper and bring out products. I think the other reason would be they don’t want to compete in the market cap space, which is lower cost and really dominated by the top three providers, because if you think about it globally, iShares, State Street SPDR and Vanguard account for about 70% of all the assets. And so clearly that’s really a price war that many don’t want to compete in, and it’s really a scale game.

Dan Barnes Of course. What’s the attraction for investors in investing in an active ETF as opposed to a lower      cost ETF, because that’s an obvious play.

Deborah Fuhr Yeah, so I think for active ETFs in the US, you have to remember that ETFs as a wrapper is more tax efficient than mutual funds because of that in-kind, trace redemption process. So by being more tax efficient means you’re getting slightly better performance. By being an ETF also means that you save on some fund admin and transfer fees, which also means if they pass those savings on, you’re getting slightly better performance, because we know that most active mutual funds don’t deliver alpha because they charge high fees. So if you can bring those fees down, you’re more likely to get some alpha out of those products. Those are probably some of the reasons. And then I would say ETFs is a new distribution channel to get you on to more platforms. Many people like to use as advisors to the same type of products, so you can put it into your order management system, allocate across all your accounts. So I think it’s just the ease of use. And clearly in this move to digital, ETFs work really well. So ROBO and other platforms. So I think there’s a number of drivers, but clearly performance is a key one.

Dan Barnes We’ve seen Bitcoin, of course, reach new highest levels at around 30.000 dollars per Bitcoin. Have we seen any corresponding issuance on the exchange traded funds areas?

Deborah Fuhr Well, you know, we did see some launches earlier in the year in Europe. So recently, the past few weeks, we’ve also seen closed end funds being launched in Canada. And we have seen a filing by VanEck again to launch a Bitcoin product in the US. So I think people are optimistic that with new commissioners coming in to the SEC that maybe this will be the year for crypto ETFs to come to market in the US.

Dan Barnes That’s great. Deborah, thanks so much.

Deborah Fuhr Thank you.

Published on January 4, 2021