Another hugely successful year for the ETF industry is almost in the books, but before we celebrate let’s take this time to look back and give thanks for all that we have. When I think about our industry, there are a few very special things I am particularly thankful for this year….
Advisors’ diligence and commitment to education – Having been involved with indexing and ETFs for close to fifteen years, I’ve seen this industry evolve from a niche within niches to bigger than hedge funds, in terms of total AUM.
Recent trends have even seen ETFs raising more assets than mutual funds in a number of categories.
The number one driver of this growth? In my opinion, it’s the fact that advisors have made it a point to educate themselves, and in turn their clients, about the benefits inherent in the ETF structure. I talk with advisors every day and I continue to be impressed by the diligence they bring to the table, asking tough questions of people in my position so they can be sure that the ETFs they end up choosing are right for their clients. A man trying to sell me suits once said “an educated consumer is our best customer” and the same holds true in ETFs.
Limit orders* – Something we should all be thankful for and something we should continue to educate investors about going forward. Sudden, wild swings in the price of a security are not unique to ETFs, though recent media coverage has tended to focus on ETFs, particularly following the events of August 24th, when so many investors who had placed market orders** or stop loss orders*** saw their trades executed at sometimes shockingly low prices. While the exchanges, the SEC and other regulators debate changes in market structure and trading practices, a possible solution already exists in limit orders. We all just need to use them.
Fee compression – The fees associated with broad market ETFs have been trending down dramatically, particularly in recent months, which is a great development for investors and one more great selling point for our industry. Beyond the “fee wars” in broad exposure ETFs is also the fact that so many more of the so-called “esoteric” strategies, including liquid alternative funds, are now available in ETF wrappers with far lower fees than, and significant tax benefits over those found in the typical private placement structure.
Mergers & Acquisitions – 2015 was a special one for me as I saw both a four-fold increase in the assets in our IQ Merger Arbitrage ETF (MNA) and was part of an acquisition myself as my firm, IndexIQ, officially became part of the team at New York Life Investment Management (NYLIM). The entry of NYLIM and several other large asset managers into the ETF space shows that competition and innovation are going to remain strong for years to come.
I wish everyone reading a very happy Thanksgiving. Clearly we all have a lot to be thankful for.
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IQ Merger Arbitrage ETF (MNA): Risk Discussion: Certain of the proposed takeover transactions in which the Fund invests may be renegotiated, terminated or involve a longer time frame than originally contemplated, which may negatively impact the Fund’s returns. The Fund’s investment strategy may result in high portfolio turnover, which, in turn, may result in increased transaction costs to the Fund and lower total returns. The Fund is susceptible to foreign securities risk – since the Fund invests in foreign markets, it will be subject to risk of loss not typically associated with domestic markets, including currency transaction risk. Diversification does not eliminate the risk of experiencing investment losses. Stock prices of mid and small capitalization companies generally are more volatile than those of larger companies and also more vulnerable than those of larger capitalization companies to adverse economic developments. The Fund is non-diversified and is susceptible to greater losses if a single portfolio investment declines than would a diversified fund. The ETF should be considered a speculative investment with a high degree of risk, does not represent a complete investment program and is not suitable for all investors.
MainStay Investments® is a registered service mark and name under which New York Life Investment Management LLC does business. MainStay Investments, an indirect subsidiary of New York Life Insurance Company, New York, NY 10010, provides investment advisory products and services. IndexIQ® is an indirect wholly owned subsidiary of New York Life Investment Management Holdings LLC. ALPS Distributors, Inc. (ALPS) is the principal underwriter of the ETFs. NYLIFE Distributors LLC is a distributor of the ETFs and the principal underwriter of the mutual fund. NYLIFE Distributors LLC is located at 169 Lackawanna Ave., Parsippany, NJ 07054. ALPS Distributors, Inc. is not affiliated with NYLIFE Distributors LLC. NYLIFE Distributors LLC is a Member FINRA/SIPC.