A number of words come to mind when looking back on 2020. “Unspeakably tragic,” “grueling” and “completely bonkers” all seem appropriate.
Completely bonkers certainly seems to apply when it comes to what happened in ETFs this year. We rode out the last day of 2020 with an additional four launches. That brings the total to 318 launches for the year—a record number that surpasses even the 303 launches in 2011. It's quite striking that this occurred against the backdrop of a global pandemic and a global financial meltdown.
We also had a record-breaking number of closures, logging 275 shutdowns during the year, blowing away any prior counts, which had rarely exceeded 200 in previous years. In fact, between Invesco consolidating its sprawling ETF lineup after multiple acquisitions of other issuers and the wave of closures that happened during the market crash, closures actually led launches going into September and it was still a close race going into November. Then December widened the gap well and truly with 55 launches and just 31 closures.
Launches By Year, 2018-2020
Closures By Year, 2018-2020
Active Makes Its Mark
Roughly 170 of the ETFs that rolled out in 2020 qualified as actively managed. That number represents more than half of the total number of ETF launches during the year and reflects some key trends.
First, and perhaps most importantly, the passage of the ETF Rule in the last half of 2019 really seems to have seen its impact come to fruition in 2020. The ability to do custom baskets with actively managed ETFs enticed quite a few active managers into the market, attracted by the prospect of getting the full benefits of the ETF structure’s tax efficiency. No less than Dimensional Fund Advisors cited this development as a key reason for them entering the space.
Then there was the flood of defined outcome ETFs that debuted this year. There are 86 such funds on the market, and 54 launched in 2020 from Innovator, First Trust, Allianz and TrueShares, with Pacer joining the wave in the last days of the year. While the vast majority are tied to the performance of the S&P 500 Index, some are linked to international indexes, the Russell 2000 or the Nasdaq-100 Index.
And we got our first nontransparent actively managed ETFs at the end of March, though funds falling under that rubric numbered less than 20 at the end of the year. Although there is not much evidence of end users demanding nontransparent models, they may prove to be a lure for issuers reluctant to use the traditional ETF structure as a wrapper for their active strategies.
Asset Class Breakdown
The mix of ETFs launched this year included 156 U.S. equity ETFs, 72 international equity ETFs, 43 U.S. fixed income ETFs and 10 international fixed income ETFs.
When it comes to the more obscure asset classes, the asset allocation category saw the addition of 24 new ETFs, which is a sizable number for a category that includes just 76 funds. Similarly, the alternatives category, which has fewer than 50 members, added six funds in 2020.
The commodities category, which included 97 ETFs as of the end of the year, added just two ETFs during the year. Inverse equity saw the addition of just two ETFs, while the leveraged equity category just added three ETFs.
Contact Heather Bell at [email protected]