On this week’s “ETF Prime,” host Nate Geraci was joined by Tom Hendrickson, chief product and innovation officer at VettaFi, to discuss the changing patterns being seen in advisor interest in asset classes and funds. Later, Geraci was joined by Joanne Hill, chief advisor of research and strategy at Cboe Vest, who took a look back at the development of the ETF industry and where it could be headed. Finally, JD Gardner, founder of Aptus ETFs, was on to talk about the company’s lineup of more unique active ETFs.
VettaFi is uniquely tapped into the pulse of the advisor community; through content creation via articles, videos, podcasts, webcasts, and more, VettaFi is able to track advisor interest and poll to see where advisors’ preferences and strategies lie at any given point in time.
“What we try to home in on is that when an advisor is in that mindset [of researching investment strategies, portfolio construction, or individual funds],” explained Hendrickson. “So for every minute, or for every half hour, or every hour of time that they are doing research, where are they focusing that time?”
Hendrickson collated data from the VettaFi platform over the last three years, looking at June of 2020, June of 2021, and June of this year (minus the few days still left in the month) and was able to identify several trends based on advisor interest. One such trend has been a sharp decline of interest in technology in 2022 compared to the two previous years, with time spent researching technology-related funds and strategies down 50%.
“That’s not to say that advisors don’t believe in certain asset classes or certain elements of their portfolio construction. A lot of advisor conversation is driven by what’s on top of mind of their clients as well,” Hendrickson said. “It’s not to say that advisors are selling out of this space, but that the demand on their time from a research perspective isn’t as high, which is different from the flows.”
An area that has garnered a lot of advisor interest has been within yield and high-dividend yield equities in 2022 specifically as advisors seek returns for their clients. Hendrickson underlined the need to lift the hood on dividend investments and understand exactly what a fund holds so that advisors and investors are aware of the exposures that they have through such ETFs.
Fixed income is also one of the most heavily researched areas by advisors across all of VettaFi’s content, growing between 2020 and 2021, and then again between 2021 and 2022. This area of focus specifically in 2022 has been on short-duration fixed income and municipal bonds.
“This conundrum that advisors and investors have had is one of the areas that is most challenging, and so we’ve seen a fairly big shift in attention on this area, specifically the U.S. fixed income slug of our research,” Hendrickson explained.
The Evolution of the ETF Industry and Aptus Option ETFs
Next on was Joanne Hill, chief advisor of research and strategy at Cboe Vest, who has an extensive history within the ETF industry and was one of the first ETF analysts in the business. Hill explained that some of the first major buyers of ETFs were actually hedge funds that were shorting them during the bear markets of the early 2000s, and that for a long time ETFs were only popular with institutional investors and not retail ones until the mid-2000s. Looking ahead, Hill sees active playing a continued role within the industry.
“As I was talking about kind of evolution of products and ETF packaging, it’s been a long time coming, but I think we are now in this current phase, it’s not just active strategies but the opportunity to put options-based strategies in ETFs,” Hill said.
Last on was JD Gardner, founder of Aptus ETFs, an issuer that currently has five ETFs, all utilizing options, and $2 billion in assets. One of the most popular of their lineup is the Aptus Defined Risk ETF (DRSK), which acts as a bond replacement in portfolios.
“The reasons that you held bonds in the past are not the reasons you’re going to hold bonds in the future, and I think we needed something to help directly replace bonds,” Gardner explained. “We wanted to launch something that can have similar risk metrics as a typical bond fund but have much better upside.”
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