Cerulli comments on non-transparent ETFs


The latest report from Cerulli Associates finds that ETF assets totalled just more than USD4.4 trillion, compared with the ETFGI total of over USD6 trillion. 

Cerulli writes that this can be attributed to a strong year for capital markets, but also that investor demand was high as they poured a collective USD326.0 billion in net new flows into the ETF vehicle. Since year-end 2018, ETF assets climbed 31 per cent, while mutual fund assets increased 21 per cent.

Cerulli comments that with USD16.3 trillion in assets, the mutual fund remains the industry’s dominant investment vehicle, “although that status continues to erode as the vehicle suffers net negative flows and asset managers prioritise development of other vehicles (eg ETF, separate account).”

Moving forward, Cerulli expects investors will increasingly seek out equity strategies in the ETF vehicle due to the availability of low-cost beta and the vehicle’s tax efficiency, while also looking to leverage the personalisation benefit of the model-delivered separate account as it becomes more available.

Cerulli also comments on the new non transparent structure for ETFs. “At the heart of product development interest in offering active strategies in an ETF wrapper is the push to offer products in a wrapper-agnostic manner (67 per cent of asset managers report placing a high priority on building out new vehicles) with the understanding that a specific client’s needs may be better met by one vehicle versus another as the mutual fund and ETF wrappers each have unique advantages for retail investors (eg the tax efficiency of an ETF vs the NAV certainty of a mutual fund). If the non-transparent ETF structures can prove themselves via the quality of offerings available, ability to trade at tight spreads, and weather market volatility, Cerulli believes that they will be able to generate adviser demand.”

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Beverly Chandler
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