Survey: ETF Themes To Grow In 2022

A new report from Blackwater Search & Advisory Wednesday morning aggregated expectations for the year from 25 global ETF issuers and digital asset managers.

In short: The ETF industry globally is banking on more cryptocurrency exposure, more thematics and for active management to finally shine after years of underperforming passive strategies.

Bitcoin Futures, Cryptos Added To Multi-Asset ETFs

Michael Geister, head of crypto ETPs and white-label solutions at Iconic Funds, expects cryptocurrencies to become standard pieces of multi-asset strategies as the asset class becomes more mainstream.

“We are facing the first stage of adoption, meaning crypto plain vanilla exposure is only the beginning,” he said.

Several issuers in the U.S. have combined bitcoin futures exposure to existing equity and commodity futures ETFs or have filings to that effect in front of the SEC. Regulators in the U.S. are consistently denying spot bitcoin ETF applications and aggressively halting efforts to introduce funds using leverage or other types of cryptocurrency futures.

Thematics Set To Keep Growing

Fund managers are continuing their bullish stance on thematic investing as a way to draw retail investor dollars into the industry. Assets in thematic ETFs have grown fivefold since the onset of the pandemic to $133 billion globally.

Global X CEO Luis Berruga said the ongoing consultation over restructuring GICS classifications by MSCI and S&P Dow Jones could give certain popular themes like renewable energy and cannabis their own subindustries and solidify the concepts behind thematic funds as standard.

“We believe that thematic investing will continue to grow rapidly and take market share

from sector ETFs as investors realize that themes are targeted ways of gaining access

to structural changes in our economy,” he said.

Carbon Focused-ESG

HANetf co-CEO Hector McNeil believes physically backed carbon offset ETFs will be one of the next investment goals that the wrapper can capture, and offer a different way to benefit from the energy transition away from fossil fuels.

He specifically points to Europe, as the European Union is reducing the number of offsets it issues annually and in turn raising prices:

“I genuinely believe we could see over $1 billion in AUM in 2022.”

However, he said it’s key to own ETFs holding carbon offsets directly, rather than funds holding futures contracts.

Several issuers interviewed for the report also cite ESG funds as a potential source of asset growth for the global industry this year.

Active To Benefit From Volatility?

Active managers flooded the market in 2021, particularly in the U.S. after the 2019 ETF Rule brought down barriers to entry for fund launches.

2022 is slated for more growth in that section of the industry as major mutual fund players like Capital Group prepare to launch existing strategies in ETF wrappers, and boutique firms bring their strategies to the publicly traded markets, said Jillian DelSignore, managing director at FLX Distribution.

Capital Group Head of ETFs Holly Framsted argued that actively managed funds are poised to benefit from the volatility in the broader macroeconomic situation after years of steady growth in benchmark-tracking investments.

“Active ETFs are moving from being niche, satellite allocations to sitting at the core of investor portfolios,” she said.

She reiterated the firm’s intention to launch its debut slate of six active, nontransparent ETFs by the end of the first quarter of 2022.

Capital Group is the ninth-largest asset manager in the world, with $2.6 trillion in assets under management as of September 2021, according to estimates from ADV Ratings.

M&A An Option For Quick Growth

While ETF assets under management crossed $10 trillion last year and U.S. inflows shattered records with more than $900 billion in new assets, larger issuers may start buying up smaller funds rather than hope for organic growth.

AXS Managing Director Ben Fulton said he wouldn’t be surprised to see acquisitions of at least one or two ETF issuers with more than $5 billion in assets by a larger sponsor, especially as relatively smaller fund managers struggle to find the level of distribution that puts them on level footing with the world’s largest issuers.

“It’s too expensive and time consuming to build distribution to maintain that growth, so being acquired is the path to least resistance,” he said.