By David Mann, Head of Capital Markets, Global Exchange-Traded Funds (ETFs), Franklin Templeton Investments
Before getting into my predictions for 2019, I need to have some honest reflection on how I did last year. Let’s recap my 2018 predictions and give myself a grade on each.
1. Active equity ETFs will make a surprising asset leap
Grade: B-
On the one hand, I was right about the increased adoption of active ETFs. Last year, we saw $14 billion go into active ETFs, and this year we just crossed the $25bln mark.1 Nice!
However, of those $25bln of inflows, only a little more than $3bln went into active equity ETFs. That is actually down from the $4bln of inflows last year.2 Active fixed income ETFs earned the lion’s share of inflows in 2018, at almost $20bln.3
The total assets under management (AUM) of active ETFs is now almost $70bln, with most of that in fixed income.4 Maybe people are starting to appreciate the flaws with indexed fixed income ETFs?
2. The interest in low-cost passive ETFs is not going to change.
Grade: A
I do not see this trend of investors looking to get low-cost exposure to a particular market changing any time soon. These stats from Bloomberg, (as of 11/23/18) seem to confirm this view:
Average management fee of the top 10 ETFs in terms of inflows: nine basis points5
Average management fee of the top 10 ETFs in terms of outflows: 35 basis points
3. More niche areas
Grade: B
In 2018, there were more than 200 ETFs brought to market. Many of them were incredibly specialized thematic plays, so it is true that we saw more niche areas. However, I didn’t give myself an A on this, because not many of those attracted significant assets. That said, I will most likely revisit this theme next year, considering the time it usually takes for an ETF to gain acceptance. We may very well see things change.
4. Possible ETF-related regulations
Grade: A
This one was an easy A, because we have a proposed ETF rule! I blogged about it! And, Franklin Templeton has a comment letter! I was tempted to knock myself a half grade considering this was a repeat prediction, but it’s been a long time coming, and finally gained traction in 2018.
Overall: Not too bad!!
Stay tuned for my predictions for 2019 in an upcoming post.