The past year saw the ETF industry barrel past the previous record for the number of launches in a calendar year, with 543 new ETFs hitting the market. The previous record was just under 480 in 2021, meaning 2023 beat that number by more than 60 funds.
According to Morningstar, roughly 75% of the funds that launched this year are actively managed.
“It was only a few years ago when we crossed 2,000 ETFs listed that the first ‘there are too many ETFs!’ complaints started up, and yet here we are,” said Dave Nadig, VettaFi financial futurist. “But the reality is there’s no cap on innovation. The products we’ve seen gain traction this year — the rise of active products, the narrow slices of the market, options overlays, buffers, conversions — they weren’t really even a pipe dream five years ago, and they’re the stories of the year.”
“ETFs have gained so much ground because they solve real problems for real investors,” he added.
A Deeper Look at ETF Launches
However, keep some things in mind. First, among those launches were 39 mutual-fund-to-ETF conversions. That’s about as many as all the conversions that occurred in 2021 (when the first ones happened) and 2022 combined.
Many issuers view conversions as a way to attract new interest to funds that may have been overlooked in the mutual fund arena. However, Dimensional converted its tax-managed mutual funds into ETFs because of the tax advantages that come with the structure.
A second interesting feature of that record number of ETF launches is that seven of the funds launching in 2023 also closed within the same calendar year. That’s not the first time that has happened. However, it was previously unheard of to see more than one or two in any given year.
Closures were the highest they’ve been since the record set in 2020. That said, they didn’t come close to 2020’s count of 275, as recorded by FactSet. In 2023, including the seven funds that launched and closed within the calendar year, there was a total of 246 ETF closures.
For more news, information, and analysis, visit VettaFi | ETF Trends.