Exchange traded fund investors and industry insiders converged in Hollywood, Florida to take a comprehensive look at what is in store for the ETF market and global economy for the year ahead.
The Inside ETF conference with close to 2,500 participants is in full swing. Tom Lydon, Editor & Publisher of ETF Trends, will be moderating a panel discussion for Smart Beta at the Core: Can It Work? Should You Switch? on Tuesday and will also join as a panelist on the People’s Choice: The Best new ETF of 2016 panel discussion.
As attendees talk and mingle over the recent explosive growth of ETFs and examine the future of the industry, some major trends are popping up in the discussions.
For instance, Bob Pisani for CNBC pointed out that money will keep coming in.
The U.S. ETF industry is growing toward $3 trillion in assets under management, with $288.6 billion in inflows for 2016, compared to the $90.8 billion in outflows mutual funds suffered.
The growth is expected to pick up pass, with a survey of ETF professionals by PricewaterhouseCoopers showing that predicted ETF assets under management would expand to $5.9 trillion by 2021, or a 23% cumulative annual growth rate, as investors enjoy the low cost of the ETF structure.
“It’s not so much about active versus passive, it’s more about moving from high-cost funds to low-cost funds,” Ben Johnson, head of ETFs for Morningstar, told CNBC.
The ETF industry has engaged in an internecine price-war that has pushed expense ratios closer and closer to zero, ultimately benefiting the end investor.
There are now U.S.-listed 1,978 exchange traded products, which include both ETFs and exchange traded notes, with $2.6 trillion in assets under management and an average expense ratio of 0.57%, according to XTF data. The cheapest ETF options include broad U.S. stock strategies with a dirt cheap 0.03% expense ratio, including the iShares Core S&P Total US Stock Market ETF (NYSEArca: ITOT), Schwab U.S. Large-Cap ETF (NYSEArca: SCHX) and Schwab U.S. Broad Market ETF (NYSEArca: SCHB).
Moreover, some providers, like Charles Schwab and Fidelity Investments, are offering their ETFs with commission-free trades on their respective brokerage platforms.
As the ETF industry continues to grow, we will likely witness the continued fall in traditional actively managed open-end mutual funds, especially those that have consistently underperformed and charged high fees – the S&P has found that about 80% of active managers have failed to outperform for years.
Among the hot new areas in ETFs, smart beta or alternative factor-based index ETFs are all the rage. These smart beta themes combine actively managed styles in a passive rules-based index structure to help investors potentially enhance returns and diminish risks.
With the continued growth in the ETF space, more money managers and even mutual fund firms are crafting ETFs. As many plain vanilla index-based themes are already well populated, ETF sponsors have increasingly turned to niche or focused strategies to slice the markets into smaller segments.