Active ETFs launches have surged this year, but are all these new debutants all dressed up with nowhere to go?
Active ETFs inflows are on fire, with those of the first six months of this year nearly matching all of 2024, according to a Cerulli report issued last week. Still, 71% of ETF issuers told the research and consulting firm that it is difficult for their products to get shelf space at broker-dealers. In fact, no respondents disagreed about it being difficult, with the remaining 29% saying they were neutral. For so many recent entrants to the US ETF market, especially those launching niche or leveraged funds, that probably isn’t surprising, as broker-dealers tend to want track records, usually three years, before putting products on their platforms. There’s also the issue o...
Active ETFs launches have surged this year, but are all these new debutants all dressed up with nowhere to go?
Active ETFs inflows are on fire, with those of the first six months of this year nearly matching all of 2024, according to a Cerulli report issued last week. Still, 71% of ETF issuers told the research and consulting firm that it is difficult for their products to get shelf space at broker-dealers. In fact, no respondents disagreed about it being difficult, with the remaining 29% saying they were neutral. For so many recent entrants to the US ETF market, especially those launching niche or leveraged funds, that probably isn’t surprising, as broker-dealers tend to want track records, usually three years, before putting products on their platforms. There’s also the issue of compensation, as ETFs, unlike shares of mutual funds, don’t have distribution fees embedded in them. For newcomers, relying on distribution via RIAs is a challenging prospect to get enough scale to make their ETFs viable, said Kevin Lyons, a senior analyst at Cerulli.
“One of the advantages of converting a mutual to an ETF … is you can carry along that track record,” he said. “That allows you to jump over one of those initial obstacles for approval.”
Would You Like to Share That with the Class?
Fund shops have been adding new ETFs, or converting mutual funds to them, and that says a lot about demand. The SEC is on the cusp of approving the dual-share-class structure, and it’s clear that many companies don’t want to wait. While some of the larger asset managers that are first in line for that approval will be the first movers, it may take others some time to acclimate and catch up, Lyons said.
Other indicators of ETF demand, include:
- Among more than 800 US ETFs launched in the past 12 months through September, 86% were active products, and 37% of sales this year have gone to active products, according to a recent report by JPMorgan Asset Management.
- Nearly 9 in 10 ETF issuers are currently developing transparent active ETFs, Cerulli found.
If You Build It … An inevitable consequence of the deluge of new products, including novelty strategies and those focused on meme coins, is that there will be more ETF closures in the future. Asset managers are trying to balance keeping up with hot new product trends and keeping to their areas of expertise, Lyons said. “There are going to be some lessons learned in that.”
The post Active ETFs Keep Coming. Selling Them Is Another Story appeared first on The Daily Upside.