Who You Callin' Mature?

As the ETF.com Awards reflect, the industry has matured, but it’s still innovating.

Reviewed by: Dave Nadig
Edited by: Dave Nadig

[This article appears in our April 2019 issue of ETF Report.]

For those who don’t follow the ETF space like a hawk and spend their evenings reading SEC paperwork, the headline winners this year might imply a maturing industry. After all, the JPMorgan BetaBuilders suite—led by the cap-weighted, plain-vanilla Japan fund, BBJP—doesn’t seem, on the surface, like a big deal.

But consider that particular flagship fund has pulled in $4 billion in less than nine months, and it’s clear there’s a tale to be told.

In this case, that’s a story of a major financial player essentially deciding to be a big deal in the ETF space. By working with internal clients, J.P. Morgan has steered an enormous pool of assets into house-brand funds. But really, this “bring your own asset” phase of the ETF industry can be seen from little firms to big ones—from plain-vanilla products to the most innovative smart-beta products.

Dare To Be Boring
Indeed, this focus on “big and cheap” dominated headlines in 2018. Month after month, the flows told the same story: Investors love big and—dare I say—“boring” funds.

But while that’s been grabbing headlines, the industry had one of the best years for new funds in recent memory. Just this last year, we’ve seen successful launches of everything from the structured-product-in-ETF-clothing Defined Outcome funds from Innovator, to complete series of next-generation sector funds from iShares. I’m struck with just how good so many of the new launches were, and how well-received they’ve been by investors.

It’s truly a Lake Wobegon situation, where all the children are famously above average. It’s easy to lose track of just how much good the ETF industry is actually doing for investors. And not just for one kind of investor—for all kinds of investors.

Growth Danger?
If there’s a danger in the growth, it’s that we can forget where we came from. With so many new players big and small, we should remember that just a few years ago, many of us could name every single ETF in the market by ticker. Those days are long gone. But the spirit of doing the right thing by our investors isn’t, as long as we hold onto it.

I’m encouraged that so much of the energy from newcomers in the space has focused on environmental, social and governance (ESG), if for no other reason than it shows this culture remains intact—whether it’s Paul Tudor Jones from JUST Capital helping Goldman tackle ESG, or the fact that our Innovative Issuer of the Year, Impact Shares, funnels all profits back to the nonprofits that help design its unique funds.

So despite the fact we now have 2,225 ETFs, I believe the joint spirits of innovation and responsibility are still very much the driving forces, whether you want to call the industry “mature” or not.

And what about the coming year? By my reckoning, the pipeline is jampacked with innovative ideas. Some will end up stuck on the desks of regulators, but others will leap off of them to be next year’s big new thing. And that’s what makes this such an exciting time to be an ETF investor.

(See: And The 2018 ETF.com Awards Winners Are ...}

Prior to becoming chief investment officer and director of research at ETF Trends, Dave Nadig was managing director of etf.com. Previously, he was director of ETFs at FactSet Research Systems. Before that, as managing director at BGI, Nadig helped design some of the first ETFs. As co-founder of Cerulli Associates, he conducted some of the earliest research on fee-only financial advisors and the rise of indexing.