Nadig: The Outlook For ETFs In 2017

November 21, 2016

Today I return to ETF.com. I left 18 months ago as chief investment officer, when the Data business of ETF.com was sold to FactSet Research Systems. I return as CEO to help lead ETF.com into the next phase of ETF industry growth.

It’s reasonable to ask: Why now?

The answer is simple: The ETF industry is poised for even stronger growth than it was two years ago, and faces bigger—and more interesting—challenges than ever.

1. The Active/Passive Debate Is Heating Up

You need only look at fund flows on any given week to see that investors continue to vote with their feet, and they’re voting for low-cost, index-based ETFs. In election week, ETFs pulled in almost $24 billion in new money, while according to Lipper, traditional mutual funds shed $3.4 billion in assets.

That’s a pattern we see week after week, month after month, year after year, ever since the financial crisis. Investors are clearly starting to pay attention to years of research suggesting most active managers don’t beat their bogeys after fees. S&P continues to publish SPIVA report cards showing >80% of managers underperforming, and globally, regulators are starting to take notice too.

But it’s not that simple. Active managers are starting to show up in ETF-land at a steady clip, led by the success of fixed-income managers like PIMCO and DoubleLine. There are now over 160 actively managed ETFs.

At the same time, well-respected research shops like Bernstein are calling into question the actual morality of indexing. A half-dozen nontransparent active management ideas are stalled at the SEC. In other words, things are just starting to get interesting. Helping investors get signal from the noise is a huge and exciting challenge for the coming year.

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