Baird’s Lee comments on impactful trends and themes for ETFs in 2021
Rich Lee, Head of Program Trading at Baird, writes on some of the most impactful trends and themes of 2021 and what might be on tap in 2022.
Firstly, Lee comments on what he calls ‘the ETF juggernaut’. “Just in the US, ETFs are now a USD7 trillion category, up from around USD5.5 trillion to end 2020,” says Lee. “Yes, markets have been strong, but more than 600 billion of those dollars have come from new investor inflows.”
He also notes that assets remain concentrated at the top, but innovators are carving out market share. “The ‘big three’ of the ETF industry remain firmly entrenched, but we’ve seen a number of upstarts prove over the past year plus that there is room for competition, particularly in various thematic investment categories.”
Lee celebrates the arrival of active ETFs. “Cathie Wood and the team at ARK dominated the headlines to start the year, and while many of their strategies have seen performance decline as we moved further into 2021, there hasn’t been the massive exodus of investors some may have predicted. They have also not been alone in generating investor inflows into active ETF strategies. Active non-transparent funds, which received a lot of attention in 2020 have seen a slower start than their transparent cousins, but the overall category is robust, growing and will be interesting to watch as some larger, established active managers from the SMA and mutual fund world look to build their footprint in ETFs.”
Lee comments that large-cap indices have a small number of stocks driving gains. “Much has been made over the last year-plus about the fact that a small subset of the S&P 500 is responsible for driving the majority of the index’s gains. It’s been spurring some fascinating debate in different corners of the passive investing and program trading worlds, and we’ve been happy to help provide our clients with key context as this continues to unfold.”
Finally, Lee turns to crypto, saying that the success of the bitcoin futures ETF speaks to investor demand for crypto. “Though we do not trade or make markets in crypto assets, it is impossible to talk about the ETF world in 2021 without highlighting the success of the first bitcoin futures ETF to come to market. With its record-setting debut, it plants a flag for crypto access via the ETF category and ensures we will all be talking about how/why/when we’ll see direct digital assets exposure come to the ETF space.”