At the end of 2020, there were more than 2,390 ETFS listed in the U.S., with a record of nearly $5.5 trillion in assets. Actively managed ETFs set new records in 2020, as well. According to the NYSE1, there was a 71% increase in active ETFs from year-end 2019 to year-end 2020. What drove this growth, and will we see more asset managers chasing the active ETF trend?
In the past six months, Ultimus has held various webinars on active ETFs. We can, with certainty, affirm that many of our new ETF product discussions include dialogue around active strategies. Whether asset managers are seeking traditional, transparent ETFs or a better understanding of proxy portfolios, such as NYSE and Blue Tractor, or non-transparent solutions, the interest is alive and well in 2021.
This active trend was precipitated by the 2019 passing of SEC rule 6c11. The “ETF Rule” allows new issuers to quickly come to market as long as they meet specific requirements, such as transparency on website disclosure and proper, written policies and procedures for leveraging the use of custom baskets. Prior to the ETF Rule, each issuer required individual exemptive relief. Now, however, issuers do not need exemptive relief as long they meet the rule’s requirements.
Asset managers interested in launching ETFs have emerged from various investment channels and range from separately managed account managers seeking product investing and tax efficiencies on behalf of their clients to existing mutual fund managers looking at conversion opportunities to hedge fund managers looking to enter the ETF market. Between the ETF Rule-accelerated wave of actively managed ETFs and the approval of non-transparent and semi-transparent solutions, active managers have a lot to consider before launching an ETF.
As asset managers chase the active ETF trends, there are a number of important factors to consider:
- Is the ETF wrapper the right fit for your strategy, your client, and your firm?
- Is there a need for this investment strategy in an asset allocation plan?
- Do you understand the tradability of the strategy you want to launch in the ETF wrapper?
- Do you sub-advise capital markets expertise—or not?
- Will your core client base purchase an ETF? What type of education will they need?
- What is your 12-month marketing budget?
- Do you have a targeted sales approach? How will you reach your audience?
- How will you distribute your messaging consistently?
- Can (and will) your partners help amplify your story?
Launching ETFs is easier than ever before, yet there are still many variables to manage as you chase the active trend. Working with a trusted partner to address the considerations described above—and more— can make the difference in ensuring a successful product launch.
At Ultimus, we provide a high-touch, consultative approach to help advisors navigate the multi-faceted aspects of the ETF ecosystem. We understand the nuances inherent in launching a new ETF including regulatory requirements and changes — staying ahead of trends we were one of the first administrators to launch a new ETF under 6c11 disclosure requirements.
Our product management and fund administration teams, along with our partners, educate and collaborate with advisors and create an implementation plan to meet an advisor’s objectives. Discussions center around product trends, industry demand, structure and distribution. As advisors consider ETFs, we encourage you to consider working with Ultimus Fund Solutions as your trusted and proven partner.