ETF Trends’ editor-in-chief Lara Crigger sat down with State Street’s Gunjan Chauhan for this edition of “ETF Leaders Powered by the New York Stock Exchange,” at Exchange: An ETF Experience 2022.
In discussing the big focus areas for State Street this year, Chauhan explained that many things have stayed the same since last year, but there’s been an effort to dial up that work. These efforts center around fixed income, first off, which was accelerated through the crisis caused by COVID-19 and the adoption of fixed income ETFs by a wide range of users.
Another area of focus is ESG. “I think there’s a tremendous opportunity, and we’ve seen huge growth already,” Chauhan stated. Predominantly, this growth has been seen in continental Europe, but there are strong signals in the U.S. markets as well.
The third key area of focus is active. With over 300 ETF launches in 2021 in the ETF space that qualify as active, it’s hard to ignore, making it a front-and-center focus.
A fourth focus is Asia-Pacific, taking into account the entire global geographical footprint, which shows a real opportunity in that market for State Street as well.
Fixed Income Fortunes
Getting back to fixed income, looking at what investors should be thinking about with this sector in 2022, Chauhan stated that it’s very exciting, as the acceleration has led to so much growth, which allowed for a broader range of users and a wider and deeper range of use cases.
“Fixed income ETFs really became a signal for perhaps what we’re going to see in future months and years as bond markets continue to evolve and modernize,” Chauhan added.
This area has become a price of discovery tool for many users. It’s also been shown to provide them the ability to access liquidity when underlying markets were shut down or thinly traded. There have also been the traditional cases of investment cases for fixed income ETFs really starting to grow. One can see how traditional fixed income investors involved in the cash bond markets are now looking at the additive features that an ETF wrapper around those fixed income securities can deliver.
“With fixed income ETFs only making up 1% of the entire bond market, compared and contrasted with equity ETFs that are 5% of the entire equity market, I think there’s a tremendous opportunity for growth,” said Chauhan.
ESG Edge
ESG is another previously mentioned growth area that has had a lot of advisors and investors interested. From that standpoint, Chauhan noted that there’s still a lot of learning and growth that needs to take place in this marketplace. With that in mind, State Street is taking a look at what the data are saying and what they are hearing from the investor base.
The investor base for State Street is global, so they benefit from understanding what’s happening in a number of different markets and really bringing some of that best thinking to the U.S. investors for when the time might be right.
“We take a look at the date, and anything that classifies as a global sustainable fund in 2021 had an increase of 12% growth from Q3 to Q4, with over $124 billion of inflows in funds that consider applying an ESG factor to them,” Chauhan explained.
Those are big numbers and hard to ignore, which further emphasizes that it’s a journey of discovery for ESG, which will require education and more runway to grow in this marketplace as people understand more of what ESG is really going to mean for the future.
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