ETF Industry Notching Range of Innovations in 2024
ETF Store President Nate Geraci on how the industry keeps its status as an incubator of new ideas.
The ETF industry is often referred to as the “Silicon Valley of asset management." Look no further than the extraordinary innovation witnessed in 2024 to understand why.
Nearly 600 ETFs have launched this year, with issuers pioneering new products that investors previously only dreamed of. While spot bitcoin and spot ether ETFs have garnered the bulk of attention, the industry has welcomed everything from the first currency-hedged single stock ETFs to a laddered ETF offering exposure to a series of 100% downside protection S&P 500 ETFs.
ETF Firsts You May Have Missed
Annuity-like ETFs: Stone Ridge recently debuted LifeX Longevity Income ETFs, which are designed to deliver reliable monthly distributions through a specified date and include an option for inflation protection. These “annuities in an ETF wrapper” will seek to further disrupt the traditional structured product category that defined outcome ETFs are already encroaching on. Stone Ridge Co-Founder and President Yan Zhao said the following in a press release:
“Many Americans often find themselves massively underspending their life savings out of fear. We believe LifeX represents a fundamental shift in propelling Americans towards greater autonomy over their financial futures at a pivotal time for the US retirement system."
Expect issuers to continue packaging solutions, or “boomer candy”, for the fast-growing cohort of retiree investors.
Weekly and Monthly Leveraged ETFs: In September, Tradr ETFs launched the first leveraged ETFs that reset on a weekly or monthly basis. While leveraged ETFs have been around since 2006, they have only been available with a daily reset. That can be disastrous for investors who hold these products for a longer period of time due to volatility drag, which can result in significant deviations from expected performance. Matt Markiewicz, Head of Product and Capital Markets at Tradr ETFs, offered this colorful analogy in their press release:
“It's like wearing daily contact lenses for several days in a row where the longer you keep them in, the less effective they become. We expect these new ETFs will help investors achieve the leverage they envision over the timeframe they want.”
Leveraged ETFs are obviously not for everyone and investors should always proceed with caution. However, by addressing the volatility drag associated with a daily reset, Tradr ETFs is helping investors better align their expectations and actual return outcomes when using these products.
Money Market ETF: The Texas Capital Government Money Market ETF (MMKT) recently became the first ETF designed to follow Rule 2a-7, the provision of the Investment Company Act of 1940 that governs money market funds. While money market funds are not typically associated with innovation, wrapping them in an ETF had never been done before. Daniel Hoverman, Head of Corporate & Investment Banking at Texas Capital, explained the rationale for doing so in their press release:
“Texas Capital believes the combination of the tradability of an ETF and the structure of a money market fund will prove an important investment alternative for investors looking to manage liquidity, volatility and credit risks in their securities portfolio.”
With over $6 trillion dollars in traditional money market funds, why shouldn’t ETFs attempt to disrupt this category as well?
These new products represent only a small sliver of the disruptive solutions delivered by the ETF innovation incubator this year. Whether crypto, annuities, leveraged products, or money market funds, ETFs are eating the asset management industry one category at a time.
Nearly 32 years atfer the first ETF debuted, the “Silicon Valley of asset management” is alive and well. Oh, and ETF issuers are already working to package up single stock pair trades, private assets, and much more.