Dan Barnes Welcome to ETF TV, I’m Dan Barnes. Joining me today is Deborah Fuhr, CEO of ETFGI, and today we’re going to talk through some of the figures and market activity we’ve seen in the ETF space over the last month. Deborah, welcome to ETF TV.
Deborah Fuhr Thank you.
Dan Barnes So can you tell us what is investor appetite for the exchange traded fund business been like this year?
Deborah Fuhr So when we look at the flows, it’s been interesting, so we’ve seen 12 months of consistent net inflows into ETF, so we’re measuring creation vs redemptions, not just the market move, Right? The market’s been up and down. So what we’ve seen is that in the month of May, we’ve had 48 billion of net inflows going into ETFs. Year to date we’ve had 255 billion of net inflows. That is significantly more than at this point last year when it was 140 billion. If we look at where the money is going, during the month of May, 31 billion dollars went into fixed income ETFs. But on a year to date basis, we see both equities and fixed income have taken in about net 68 billion of inflows. So we’ve seen that recently, it’s been kind of a risk-off trade. The asset class that’s taken in a significant amount more than last year is commodities. Last year was minus two billion of net flows and this year it’s 47 billion going in. So we’re definitely seeing many investors going to the safe haven of gold. And so I think ETFs have always been this very good barometer of investor sentiment, because remember, right now we’re just the beginning of June. And you know, what’s happening is if you think about mutual funds, it typically takes eight to 10 weeks to actually get that transparency on what actually happened. So I think ETFs really allow, because of the ability to buy or sell when you want to, investors are able to implement their views very timely when they want to make changes in asset allocation.
Dan Barnes And then, how do you see the fund business responding to investor appetite?
Deborah Fuhr So I think what many people have been questioning, are we seeing more products come to market or less, and how is the current environment impacting? And I would say, in general, I’ve kind of used this phrase for a while, that I think many people starting in March, were kind of in a rabbit hole and afraid to come out, afraid to do much. I do see the launches of new products increasing during May, and I think we’re going to continue to see more launches. But if you look on a global basis, the number of launches were just 322 for the first five months of the year. So that is the lowest number of launches going back to as far as we go back in our data analysis, which is 2008. But if we look at closures, we’re kind of in line with what we’ve seen in the past. And I think if you look at other markets, it’s not as if there has been a significant drop off if you go back to 2008. So if you look at the US, there was only 88 launches in 2008. This year, year to date, there’s been 93. So I think if you go back far enough, we’re not off historically, except on a global basis.
Dan Barnes So we’ve got investors moving exchange traded products they’re investing in, but still staying in the ETF market, and the market responding to that quite well. And so are there any particular structural changes that we’re seeing in terms of the products that are being launched?
Deborah Fuhr So I think what we’re seeing is, clearly we’ve seen a lot of products come to market, I think clearly what’s happened with the idea that the sky is bluer, there’s cleaner clouds, has caused many people to think about how we really have been having a negative impact as a global economy on the environment, and looking to what could we do to make things better going forward. From an environmental perspective, I think also governance, the whole Black Lives Matter movement, clearly, people want to make sure there is diversity and other things to make companies perform better. But we also see a number of new launches are taking advantage of the recently approved non-transparent active models. I don’t particularly like that term, but basically, it means that many active equity managers don’t want to tell the world every day what they invest in, so it allows them to provide quarterly transparency like mutual funds do. So in the past nine weeks, we’ve seen six new products come to market. Two came to market in April through American Century. And then more recently, we’re seeing products come out from Legg Mason Affiliate and also from Fidelity. So I think we’re seeing them take advantage of these new products. The idea being, historically active, mutual funds have suffered net outflows over many time periods and also have a challenge of delivering that alpha. So, by being in an ETF wrapper, it means you’re saving on fund admin and transfer costs. It also means that the creation/redemption process is more tax efficient, which also means better returns. So I think it’s a new vehicle, new way of being able to invest, but also adding some cost efficiencies that should improve the performance of active funds in general. So I think we’re all watching to see how this segment of the market takes off. But I would say it’s another term that many of us don’t like, because it implies that there won’t be any transparency, where the reality is they will be at least as transparent as mutual funds.
Dan Barnes I’d like to thank Deborah for her expertize, and of course, you for watching. To catch up on our other shows go to ETFTV.NET and TRADERTV.NET.