As the year comes to a close, ETF.com talked to several industry experts to discuss what stood out to them over the past year when it comes to ETFs. While some themes showed up in several conversations, others were unique to their specific viewpoints within the industry. We also asked them what they thought about what lies ahead for ETFs. Quotes have been edited for brevity and clarity.
Ben Johnson (Morningstar): The biggest developments are those headline measurables. We have absolutely blown to smithereens any prior annual record with respect to inflows, a new record in terms of AUM, a record number of new launches.
This is now the second consecutive year where we’ve seen the number of ETF launches outpace the number of mutual fund launches. It’s the year where we saw the first mutual-fund-to-ETF conversion. ETFs, if they hadn’t already arrived, arrived in a big way in 2021.
Yasmin Dahya Bilger (Engine No. 1): Unquestionably, this was a year where—both in terms of assets as well as new strategies coming to market—there was a real boom for ESG-focused ETFs. In addition to the quantity of things that have come to market, it’s also the breadth, the diversifying of what had historically been in that particular category.
Five years ago, ESG was predominantly divestment strategies—excluding things from the portfolio. This was a year of newer types of strategies coming to market, including active sustainable strategies or that unique combination of passive investing and active ownership. That product development has been pretty exciting for the ETF industry. It’s more choice for investors.
Herb Blank (ValuEngine Inc.): In the U.S., the big move into active ETFs is No. 1. No. 2 is the continued movement and acceptance of ESG ETFs and getting more granular in ESG. No. 3, of course, is the cryptocurrency futures ETF and the continued fight for holding physical bitcoin.
Nate Geraci (The ETF Store): Innovation is clearly alive and well in the space. We’ve seen a record 400+ new ETFs this year. What I thought was particularly interesting was the alternative methods of issuers coming to market.
For example, we saw the first mutual-fund-to-ETF conversions this year. In addition to that, we’ve seen RIAs launching proprietary strategies in ETF wrappers. And another method is SMA to ETF conversions. It’s not just new ETFs being launched in a traditional manner.
Despite all of the innovation coming to market, if you look at flows, Vanguard and iShares have quietly continued to rake in billions of dollars. That continues a trend we’ve seen over the past decade of investors gravitating toward the lowest-cost, plain vanilla core portfolio exposure.
Andrew Chanin (Procure ETFs): I’d be curious to see if the trend of companies battling the SEC and willing to potentially sue them over various approvals continues. I think it’s interesting because historically, the U.S. has been a leader when it comes to innovation.
When it comes to certain areas, we’ve started to notice that Canada and Europe are starting to make more progress due to different regulators.
Although the ideas for innovation are still very much here in the U.S., one of the big changes is that there are barriers to entry from regulators that are dampening the ability to innovate.
Other countries are catching up to what we’re doing in the U.S., and particularly in crypto, we’re struggling to catch up.
Simon Goulet (Blue Tractor): It’s the rise of active portfolio management. You’re seeing so many launches now. So many managers have realized that, in this environment, you have to be selective to try and create alpha. We’re seeing so many active managers jump in. The majority are choosing a transparent approach, but there are some that are doing the semitransparent approach too.