ETFs Follow Different Path In 2021

This has been a wildly different year for the ETF market than 2020 was, and not just because of the pandemic. In the ETF space, we’ve seen launches skyrocket to levels not seen in a decade, while closures have been sluggish after breaking previous records last year.

We’ve seen 152 launches in the first five months of 2021, including the largest launch ever in the history of ETFs—the BlackRock U.S. Carbon Transition Readiness ETF (LCTU) pulled in $1.25 billion in assets on its first day of trading. For context, by this time last year, we’d had only 90 new ETFs come to market.

Despite 2020 racking up record inflows, the first few months of the year were quite sluggish for launches due to the uncertainty caused by the global COVID-19 pandemic, which was still ramping up a year ago. Of course, launches eventually accelerated last year to a record-breaking 318 new ETFs.

Our launch records go back to 2012, and based on that data, the level of launches so far this year is unprecedented. In 2012 and 2019, we’d had 113 launches by this time, but that number still lags the 2021 year-to-date total by a margin of roughly 40 launches. 2011 was a huge year for launches (and held the previous record of 303 new ETFs), and it actually had a few more ETFs (156) launch by this time year-to-date than we’ve seen in 2021.

The significant number of launches this year is likely primarily a reflection of renewed optimism in developed markets in the wake of the pandemic, but we’re also likely seeing the effects of the ETF Rule continuing to play out.

After all, more than 60% of this year’s launches so far are actively managed, whereas active ETFs overall represent less than a quarter of the ETF universe. Clearly, the 2019 allowance for custom baskets for actively managed ETFs continues to entice active managers into the space at a greater rate than previously seen.

Closures

ETF closures tell us a different story. By this time last year, there had been 131 closures—a massive amount that eventually led to a record-breaking year for closures, with an unprecedented total of 275 for the entire year.

Most observers interpreted the tsunami of closures as a sign of a healthy and maturing market, even if a lot of it had to do with the March market crash. (Invesco closing more than 40 funds in February 2020 didn’t hurt either).

This year, the picture is very different. Rather than 131 closures, we’ve seen only 20 during the first five months of 2021. It could be that this is a classic case of a rising tide lifting all boats as ETF inflows have been fairly outsized this year.

In 2020, the ETF market saw more than $500 billion in inflows, another record. This year, not even halfway through, inflows stand at nearly $400 million. There’s a lot more dollars moving into ETFs than we’ve seen before, and that’s likely allowing issuers to keep funds on the market longer in hopes of pulling in assets.

Still, those two numbers next to each other (131 versus 20) are rather jarring. After last year’s runaway record, it’s a bit anticlimactic to tally so few shutdowns this year so far. With the pandemic finally receding in the United States, ETF inflows going strong and the market at all-time highs, it seems like a time for the ETF industry to thrive. At least, conditions look quite good for success.

But since we’re not in the forecasting business, we’ll just say, let’s wait and see.

Contact Heather Bell at [email protected]