In the Know: The Incredible Growth Of The ETF Industry

Yones details how there’s been continued growth and new products, but it is flows that have remained a significant part of the story. There has been $180 billion in net cash flow year-to-date, and it’s across many of the products in the industry.

Additionally, there’s been a lot going into fixed income, where it has been beating equities for the first time. Out of that $180 billion, $102 billion has been in fixed income, which has been another significant factor to consider.

“There’s a good story behind it,” Yones states, “Which is more and more of the industry ecosystem participants by side, they’re all using ETFs for fixed income exposure. Historically we didn’t see it, but now it’s everyone from the big institutions and insurance companies that are really looking at ‘how do I place my fixed income exposure and do I use ETFs instead of individual bonds, instead of funds?’”

Lydon then asks about the essence of making sure investors are trading efficiently. Yones explains that, even in volatile markets, with ETF trading having been more efficient, and spreads being tight, the liquidity is present. As a result, it’s been easier for advisors to find the product they like and trade it.

With a lot of other resources in that area, Yones notes how a lot is out there that isn’t being taken advantage of. Fortunately, the ETF issuers all have capital market teams to help investors understand or get in contact with those who can help properly navigate the capital markets and place whatever order desired for their ETF. And this is all handled on a consultative level, with no actual sales, just helping understand best practices.

Lydon then switches gear to thoughts on what’s coming up in 2020 active non-transparent ETFs. Yones states how every product that has come out has to show the portfolio every day.

“We have a very large and growing pool of full transparent active products,” Yones adds. “They’re growing at like 42% compound annual growth rate. So, it’s an active and thriving market. But for a lot of active managers, they have not come to the ETF space because they don’t want to show every single day’s trades.”

Yones goes on to bring up Precidian’s, and how, through their active shares model, offers an asset manager to license in and borrow their model for a way not to show the portfolio every day. This means active managers are comfortable bringing strategies to market in the form of ETFs, which don’t require being completely looked over all the time.

All of this allows for portfolio managers to effectively have a choice in whether their strategy should be in a mutual fund wrapper or an ETF, with the same tax efficiencies. That’s the sort of opportunity that plays well, with the ETF industry benefiting.

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