ETF Open To Close Ratio Jumps

The ETF Think Tank is a community of advisors focused on a client-centric approach to investing through the use of ETFs. Each week, we disseminate research on the growth of the ETF industry, including key performance indicators (KPIs) on number of ETFs listed, assets, revenue, exchange market share and number of issuers. This data is useful in serving to monitor the trends in the ETF ecosystem. ETF Think Tank produces this monthly report for ETF.com.

July 15, 2020

KPI Summary

ETF revenue finally returned to an annualized pace of $8 billion again after being in the $7 billion range for almost a month.

Perhaps coincidentally, the number of ETFs is now only down about 1.5% since the beginning of the year. This is principally because June saw a rebound in launches, with 34 new funds. Typically, new launches fall in the range of 20-30 a month, so what happens in the way of new launches in July will determine whether the open-to-close ratio begins to show momentum again.  

Open-To-Close Ratio Rebounds

The 12-month trailing open-to-close ratio is at 0.94 and looks be moving up again after 34 launches in June (218/233). Expectations are that we will rebound to a sustainable ratio of 1.2 to 1.5 by this quarter’s end, as the pipeline for new listings appears robust.

A positive ratio signifies innovation is being embraced. Many of the new ETFs were very targeted with high active share and less than 25% ETF overlap. Three ETFs worth highlighting are: 

• Direxion launched the Work From Home ETF (WFH) and appears to have attracted almost $20 million since its launch on June 25.

• Round Hill launched the Sports Betting & iGaming ETF (BETZ) and has attracted $88 million since its launch on June 4.
• ETFMG launched the ETMG Treatments Testing and Advancements ETF (GERM) on June 17 and has attracted $36 million in assets.

In June, the big asset is a surprise ETF invested in Treasuries, the Franklin Liberty U.S. Treasury Bond ETF (FLGV). With a 0.09% net expense ratio after fee waivers, this low-cost solution is also actively managed. The ETF took in $241 million in new assets, bringing its total AUM to $378 million.

This ETF may fall more in the “index plus” camp, because while it plans to operate with a low tracking error to the Bloomberg Barclays Treasury Index, it also can buy TIPs and Federal Agencies. Franklin now offers 44 ETFs across a $6 billion platform, and is not shy about the “bring your own assets” (BYOA) strategy, or about making acquisitions where it seems appropriate.

Franklin recently agreed to buy AdvisorEngine and will be closing on the Legg Mason acquisition probably in Q3. Legg Mason controls Precidian, the ActiveShares solution for fund managers who want to launch ETFs but don’t want to be fully transparent with their portfolio holdings.

Conclusion

The optimism in the markets in June is encouraging, and most bears seem to have gone back to hibernation.

Let’s face it, given the risks in front of us, the ETF industry appears healthy. Looking toward innovation, we see continued opportunities and demand from investors in the way of alternatives, risk management ETFs and ESG [environmental, social and governance].

High active share will be the continued important metric that helps define success in new launches and when we again show positive momentum in the open-to-close ratio.  

Contact Dan Weiskopf at [email protected] or follow him on Twitter at @etfProfessor