The exchange traded fund industry is getting an injection of new, or old, blood as some of the world’s biggest money managers see opportunity in the quickly expanding ETF universe.
For instance, investment houses Neuberger Berman, Morgan Stanley, SEI, and Matthews Asia, which together represent $3 trillion in assets under management, have jumped onto the ETF bandwagon, signaling the launch or their intention to debut 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 batch of money managers to enter the ETF space follows other financial industry heavyweights like T. Rowe Price, Dimensional Fund Advisors, and Federated Hermes that have adopted the ETF mantra in their bid to gain market share at the expense of traditional mutual funds.
The surge of interest in ETFs may be partially due to the increasingly competitive landscape as fund management fees continue to fall lower and lower. Many traditional actively managed mutual funds are facing increased investor scrutiny in light of ongoing underperformance and high management fees on top of their poor returns. On the other hand, the more efficient ETF structure has made it 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 a growing interest from financial intermediaries and end-investors who want to take advantage of the benefits active ETFs offer,” Jonathan Schuman, Matthews Asia’s global head of distribution, told the Financial Times.
Consequently, in the U.S., ETF assets have surged 185% to $7.2 trillion in the five years ended 2021, according to the Investment Company Institute, whereas assets of mutual funds increased 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 talk about meeting clients where they are, the ETF tool is one that we want to offer alongside our other offerings,” Noel Archard, global head of ETF and portfolio solutions at AB, told the Financial Times.
The recent converts to the ETF industry also pointed to the SEC’s ruling in 2019 that helped streamline the approval process for ETF exemptive relief filings.
“It lowered one of the barriers to entry for many firms that had been thinking about getting into ETFs,” Archard added. “We have a predominantly active footprint. That change in rule prompted another look into whether we should we introduce [active ETFs].”
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