The Inside ETFs conference in Hollywood, Florida kicked off on Sunday as over 2,300 financial advisors, institutional investors, hedge funds, and more discussed the latest and greatest in the ever-growing ETF space. As the investment vehicle matures, it must also change with the times of the current economic landscape.
ETF Trends CEO Tom Lydon joined CNBC’s Bob Pisani on CNBC’s “ETF Edge” show on Monday to discuss opportunities and the latest trends going on in an ETF industry that doesn’t appear to be slowing down even amid the more volatile market conditions of today.
Investors are Focusing on Price
Even with a December 2018 to forget, ETFs continued to amass assets to the tune of over $51 billion while mutual fund flows suffered. Mutual funds, bond and equity funds, in December lost a record $152 billion.
One would assume that outflows from U.S. equities in 2018 would also be evident in ETFs that have been purchasing the downtrodden shares in the three major indexes. However, that hasn’t been the case as ETFs received $314 billion worth of inflows despite a challenging 2018–a drop from the $466 billion the previous year, but given the challenges of 2018, an impressive figure nonetheless.
The capital flows into ETFs are continuing thus far in 2019 as data from XTF.com shows that ETF assets have risen by 7 percent year-to-date or $237 billion.
The primary motivator for investors in 2019 has been price. Regardless of whether an ETF uses an active or passive strategy, investors are seeking out low-cost solutions.
“In December, we saw $50 billion of new assets coming into ETFs when $120 billion came out of mutual funds,” said Lydon. “So people are continuing to be more comfortable with ETFs–more money going into the factor strategies and multi-factor strategies as opposed to pure beta, low-cost cap-weighted strategies.”
“It’s all price,” added Lydon.
Of course, as firms begin to offer more ETF products at lower prices, it puts smaller companies at odds against the larger financial giants that can swallow up market share. For consumers, this provides more alternatives, but it could pose a challenge to ETF providers–a topic to tackle during the conference.
Future Trends in ETFs
Some hot topics at the conference include up and coming ETF sectors that are still in their nascent stages of growth. This includes niche ETFs that focus on sectors like disruptive technology and ESG.
Whether society wants it or not, robotics, artificial intelligence (AI), machine learning, or any other type of disruptive technology is the next wave of innovation. For investors who missed out on the serendipitous run of FAANG (Facebook, Amazon, Apple, Netflix, Google) stocks, they can look to capitalize on disruptive tech options in 2019.
Although the idea of socially responsible ETFs that focus on environmental, social and governance (ESG) is not relatively new, it’s still struggling to break into the investment mainstream, particularly in the fixed-income space. This is exactly what the next generation of financial advisors are clamoring for according to a survey by Incapital LLC, a leading underwriter and distributor of fixed income securities.
Among financial advisors with three to nine years of experience, 99 percent of those using individual bonds discussed the topic of social impact and ESG goals with their clients. This represents a 25 percent increase compared to advisors with over 10 years of industry experience.
To Lydon, however, future trends can be had in a variety of sectors, which will no doubt be discussed as the Inside ETFs conference is in the midst of its second day of what will be an interesting four days as the conference runs until February 13.
“It’s communication, it’s going to be technology, it’s going to be more FAANG stocks and we’ll talk about that later” said Lydon.
For more market trends, visit ETF Trends.