U.S. ETF assets fell 7% to $13.3 trillion in March as broad market selling pressured equity valuations, according to data from FactSet. But beneath the headline decline, a more nuanced story emerged: fixed income captured 43% of all monthly inflows despite the drawdown, pulling in $50.8 billion as investors sought stability. March also saw three new ETF launches to address the current needs.
Key Takeaways:
- March ETF launches split 50/50 between active and passive strategies.
- Three new funds target concentration risks in financials and mega-cap tech.
- Fixed income captured 43% of flows despite falling U.S. ETF assets.
March also delivered 82 new ETF launches split exactly 50/50 between active and passive strategies, FactSet data showed. The even split marked a turning point for advisors seeking differentiated solutions, whether through professional management or better index construction, rather than traditional market-cap-weighted exposure amid rolling volatility in financials and energy sectors.
Three March launches spanning preferred securities, equal-weighted equity, and concentrated value illustrate how issuers are engineering solutions to the liquidity and concentration problems advisors confronted during the month. Two deploy active management while one uses passive reweighting methodology. Each addresses a distinct client need exposed by March market conditions.
The Eaton Vance Preferred Securities and Income ETF (EVPF) launched March 12 targeting advisors who wanted fixed income exposure without the redemption risks plaguing private credit strategies.
On the equity side, Invesco’s QQQ Equal Weight ETF (QEW) debuted March 18, offering Nasdaq-100 exposure without the top-heavy concentration that rattled growth portfolios.
Rounding out the trio, the M.D. Sass Concentrated Value ETF (SASS) launched March 4 with a high-conviction value approach previously available only to institutional clients.
See more: ETF Roundup: 3 New ETF Launches in February to Watch
Active Management in Preferred Securities
EVPF invests at least 80% of net assets in preferred securities and other income-producing instruments through active manager selection, according to the prospectus. The fund focuses on $1,000 par preferred and hybrid securities issued primarily by U.S. and non-U.S. financial services companies.
The strategy targets preferreds to capture yield while avoiding common stock volatility. Financial sector flows experienced a “roller-coaster” pattern in March, FactSet data showed, as investors rotated between bank stability and recession concerns. Preferred securities sit below senior debt but above common stock in the capital structure, offering a middle ground for advisors seeking financial services exposure without taking equity risk.
Portfolio managers Kevin Lynyak, James Benadum, and Christopher Santos employ both top-down macroeconomic analysis and bottom-up fundamental research to select securities. The fund invests across investment grade and below investment grade credits without targeting a specific average rating, according to the prospectus.
EVPF charges a 0.39% expense ratio and concentrates more than 25% of assets in financial services issuers. The fund launched with Morgan Stanley Investment Management Inc. as adviser.
Structural Reweighting Addresses Mega-Cap Risk
While EVPF tackles fixed income challenges through active management, QEW takes a passive approach to solving a different March problem: equity concentration risk.
The fund tracks the Nasdaq-100 Equal Weighted Index, which contains the same 101 constituents as the market-cap-weighted Nasdaq-100 but assigns each security the same weight at quarterly rebalances. Market capitalizations in the index ranged from $111 billion to $4.7 trillion as of Jan. 31, according to the prospectus.
That reweighting methodology directly addresses advisor concerns that emerged in March. Equity inflows declined 39% during the month as worries mounted about stretched valuations in large-cap technology names, FactSet reported. The equal-weight approach removes the concentration in the largest stocks, often called the “Magnificent Seven,” that dominated returns but increased single-stock risk in traditional Nasdaq-100 funds.
The structural innovation addresses a practice management challenge rather than requiring active stock selection. Advisors maintain client growth mandates while reducing exposure to individual stock volatility that FactSet identified as a headwind in the first quarter.
The fund charges a 0.25% expense ratio and uses full replication methodology, holding all index constituents in proportion to their equal weights. Portfolio managers Peter Hubbard, Pratik Doshi, Michael Jeanette, and Tony Seisser manage the strategy for Invesco Capital Management, according to the prospectus.
Institutional High-Conviction Value Goes Retail
SASS takes yet another approach, deploying concentrated active management to capitalize on what its managers view as pricing dislocations in the value segment of the market.
The fund holds up to 25 large- and mid-cap stocks selected through intensive fundamental research, according to the factsheet. “We seek investment opportunities where our outlook for earnings is materially above consensus and where we believe valuation provides a compelling risk/reward,” Ari Sass, president and portfolio manager, said in a March 4 press release announcing the launch.
That high-conviction approach reflects the broader shift toward active management captured in the March launch data. The 50/50 split between active and passive ETF debuts signals advisors want differentiated solutions during uncertain markets, FactSet data indicated. SASS highlights the active component: advisors seeking alpha generation through concentrated stock selection rather than broad market exposure.
SASS launched with more than $70 million in seed capital from existing clients and company principals, according to the press release. M.D. Sass, established in 1972, manages $3 billion across institutional clients. The Concentrated Value strategy managed $2.2 billion before the ETF launch, the factsheet stated.
The fund charges a 0.75% expense ratio and benchmarks to the Russell 1000 Value index. Portfolio manager Ari Sass has more than 20 years of investment experience.
Originally published on Advisor Perspectives.
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