ETF Trends
ETF Trends

The exchange traded fund universe has quickly expanded and is still in its early stages as innovation continues to drive growth.

ETF Trends publisher Tom Lydon spoke with Ben Johnson, Director of Global ETF Research & Passive Strategies Research at Morningstar, at the Inside ETFs conference that ran Jan. 22-25, 2017 to talk about some of the biggest things going on in the ETF industry.

“What we see is that the ETF tent is getting bigger every year,” Johnson said. “We saw record flows in 2016. We’ve got now more than three trillion dollars globally invested in exchange traded funds.”

In the U.S. markets, there are now 1,998 U.S.-listed ETFs from 103 fund sponsors with $2.784 trillion in assets under management.

With the passive index-based ETF landscape continuing to grow, more are shifting from traditional active strategies into the passive ETFs. However, that does not mean that investors are growing increasingly passive.

“This is not sort of an evolution in the active/passive debate,” Johnson said. “We’re beginning to realize that all investors are active…. What we’re seeing is that the objects of their active decisions are changing.”

Specifically, more investors are actively looking to various cheap, efficient ETFs as a passive investment vehicle to gain exposure to many markets across the globe.

“A bigger number of investors are making active use of these passive building blocks everyday,” Johnson said.

More recently, with the advent and proliferation of alternative index-based ETF strategies that screen for specific factors, the dividing line between active and passive has become increasingly blurred.

“What you see too, in terms of activity in the product development level, is that active is showing up wearing sort of passive clothes, so strategic-beta, smart-beta, factor funds,” Johnson said. “Whatever you want to call it is really just an active decision making framework that’s been baked into an index wrapped up in an ETF.”