Dan Barnes Welcome to ETF TV, I’m Dan Barnes. I’m here with Deborah Fuhr to talk about the ETF landscape for the next 12 months. Deborah, good to have you on again.
Deborah Fuhr Thank you, nice to be here. So the next 12 months is going to be pretty exciting. In four months time, we will be celebrating the 30th anniversary of the listing of the first ETF. And that was not in the US, it was in Canada. So Canada rarely gets credit. So we just celebrated the 20th anniversary of the listing of the first ETF in Hong Kong, so the Hong Kong Tracker Fund. Next year will be the 20th anniversary in Europe and in South Africa. So a lot of anniversaries are coming up. If we look at where we are right now at the end of October, we are at a record level of assets. So we’re at 5.59 trillion US dollars. The net new asset flows coming into ETFs this year are at 401 billion of net new, which is slightly above last year at this time, where we were at 379 billion.
Dan Barnes Wow. So we’re still seeing growth increase?
Deborah Fuhr Yes.
Dan Barnes Wow, that’s incredible.
Deborah Fuhr I think we’re seeing the increases both in terms of new issuers coming to market and we expect a lot more because in the US they recently passed the ETF rule, which will make it easier for new issuers to come to market. It’ll be a level playing field with mutual funds, because historically ETFs had to go the SEC and ask for exemptions or basically permission to come to market. That’s gone away as long as your ETFs are not leveraged and inverse, and are not periodically disclosed, transparent, active. So what we think will happen is, we’ll see many new issuers, we’ll see new products coming from existing issuers. I think some firms will partner with existing issuers because you do need a different type of distribution in capital markets capabilities. And then also, as I mentioned, so people have called it non-transparent, active. That’s really confusing because ETFs in that wrapper will be as transparent as mutual funds. So I think periodically disclosed ETFs would be better, because they could disclose daily like they have to now. They could be weekly, they could be monthly, or quarterly. So that model Precidian, has been licensed to thirteen other firms. It’s likely we’ll probably see the first product come to market probably in the first quarter. And we know that there’s also new products coming to market here in Europe. So I think there’s a lot of new ESG products, fixed income is also a focus, smart beta. And then as index providers are including, say China A-shares, moving Saudi Aramco up into emerging markets, moving Kuwait into Frontier, we see many investors using ETFs to just easily get that exposure.
Dan Barnes That’s very interesting. And as we’re seeing smart beta strategies increase, are these just getting slightly further away from the existing curve of strategies, or are you seeing completely new ideas?
Deborah Fuhr It’s a little bit of both. I mean, the most popular one within smart beta, some wouldn’t say it is smart beta, is high dividend. So a lot of people want income, so they wouldn’t necessarily say it’s smart beta. But what we are seeing is firms launching multifactor, and so that is very unique to the firm, right, they decide what are the factors, what are the weightings. But you’re seeing well-known firms coming out in this space and many see it as kind of the middle ground between traditional market cap index and truly active. And so we’re seeing a lot of new entrants come into the space right now.
Dan Barnes OK, and are there any risks on the horizon?
Deborah Fuhr Well, you know, the risk is, is that people don’t read the prospectus and they don’t understand what type of benchmark they’re investing in, right? Because you could hear S&P 500, but it could be equal weighted, it could be high dividend, it could be, you know something else. So I think people have to do their homework. But the important thing is to remember and that’s a great question is, ETFs are funds highly regulated with the added benefits of being listed and traded on exchange, right? So the way they use derivatives, the way they do securities lending is highly regulated and other collective investment schemes do the same thing.
Dan Barnes That’s very good. Deborah, thank you very much.
Deborah Fuhr Thank you.