The exchange-traded fund industry is getting a shot of new or old blood, as some of the world’s largest money managers see an opportunity in the rapidly expanding ETF universe.
For example, investment houses Neuberger Berman, Morgan Stanley, SEI and Matthews Asia, which together represent $3 trillion in assets under management, have jumped on the ETF bandwagon, signaling the launch or intention to launch their first offering. of ETFs, the Financial Times. informed.
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 who have embraced the ETF mantra in their bid to gain share of market at the expense of traditional mutual funds.
The surge in interest in ETFs may be due in part to the increasingly competitive landscape as fund management fees continue to fall further and further. Many actively managed traditional mutual funds are facing increased investor scrutiny in light of continued poor performance 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 that mutual funds will continue to provide benefits to many investors, we have seen growing interest from financial intermediaries and end-investors who want to take advantage of the benefits that active ETFs offer,” Jonathan Schuman, global director of distribution for Matthews Asia . he told the Financial Times.
Consequently, in the US, ETF assets rose 185% to $7.2 trillion in the five years ending in 2021, according to the Investment Company Institute, while mutual fund assets rose 65% during the same period. Meanwhile, ETF assets have more than tripled globally to $10.1 trillion since 2015, according to consultancy ETFGI.
“If you’re talking about meeting clients where they are, the ETF tool is one we want to offer alongside our other offerings,” Noel Archard, global head of ETF and portfolio solutions at AB, told the Financial Times.
Recent converts to the ETF industry also pointed to the SEC ruling in 2019 that helped streamline the approval process for ETF exemption relief filings.
“It lowered one of the barriers to entry for a lot of companies that had been thinking about getting into ETFs,” Archard added. “We have a predominantly active footprint. That rule change prompted another look at whether we should introduce [active ETFs].”