An Anniversary Amid Chaos

[This article appears in our July/August 2020 issue of ETF Report.]

It’s fitting that the 20th Anniversary issue of ETF Report would be packed with some of the biggest topics in the ETF space: active management, thematic investing and volatility.

For years, these have been hot-button issues for ETF aficionados, and the COVID-19 pandemic has brought them into even greater focus.

Many have questioned the value of active management for the past few decades, and the argument of its supporters has always been that active managers could better navigate plunging markets. What better year to test that thesis than 2020?

Meanwhile, thematic investing, often downplayed as a small niche effort, has suddenly seen renewed attention, as an upended economy has driven investors to seek out nontraditional slices of the market. Themes no longer sit on the fringes.

Finally, volatility has had a banner year, going through the roof during the market crash earlier this year, and causing investors to take a much closer look at the VIX and the investment vehicles it underlies.

The first half of the year was certainly eventful, largely due to the pandemic. The same, however, can be said about the entirety of the past 20 years. So much has happened with ETFs since ETF Report first appeared in 2000.

Publication Of Record
When the publication first launched, the ETF industry was represented by a handful—less than 100—of funds and had only a few billion dollars in assets under management. The space was so small it barely warranted a publication termed a “report” dedicated to it. Now, ETFs are a $4.4 trillion industry in the U.S. alone, with more than 2,300 ETFs trading domestically.

ETF Report has told the story of the ETF market during times of prosperity and times of stress. It has helped ETF investors steer through them, from the 2001 recession that lasted through the 9/11 terrorist attacks to the Great Financial Crisis (GFC) that kicked off in 2007 to the COVID crash (and rebound) of the last few months.

Our 20th Anniversary issue comes in 2020, which has all the feel of an inflection point. So, what comes next for ETFs?

After The Inflection
The new active nontransparent ETFs could put the passive/active debate to rest for good, for one thing. After all, if these new products successfully combine the perks of traditional active mutual funds with the benefits of the ETF wrapper, active management true believers will likely buy in. It may be a while before that shakes out, but we’re sitting in the front row of this disruption.

Thematic investing, too, seems to be on the verge of something bigger. Many of these ETFs have withered on the vine for a long time, but it seems clear that they present a way for investors to add a little tactical oomph to their portfolios when the timing is right (cloud computing, anyone?). It very much looks like the COVID crisis has strengthened the value proposition of thematic funds as a viable way to play times of upheaval.

And volatility, which was depressed for years following the GFC, is back—opening the door for all sorts of trades and investing ideas to flourish in this space.

We’ll be keeping track of these trends and others, hopefully for the next 20 years or more. As it stands, ETF Report is the oldest ETF-focused publication in existence, and we’re proud of that accomplishment. We’re even more proud of the opportunity to keep being the publication of record for an industry we love.