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Wednesday, December 27, 2017

Has the ETF Flood Spilled Beyond Traditional Beta?

News summary by MFWire's editors

Smart beta ETFs, active ETFs, and ESG ETFs all continue to get lots of attention, but can they catch the truly big kahunas of the space? Will 2018 be the year that the ETF flood reaches beyond traditional big beta in a big way? Maybe, but just as active managers expecting a performance comeback in a predicted market dip should not expect passive's flows to just disappear, non-traditional ETF shops should not expect big beta to stop being a flows juggernaut any time soon.

The biggest contenders trying to catch big beta are strategic beta (i.e. smart beta) ETFs. Smart beta funds recently passed $1 trillion in combined AUM, the Financial Times reports. Smart beta ETFs (and other smart beta exchange-traded products) alone rose to $687.471 billion in AUM as of November 30, according to data from ETFGI, gathering a record $68.73 billion in net new assets since the beginning of 2017, already surpassing net inflows for all of 2016. Smart beta ETFs' combined AUM rose 30.2 percent in the first 11 months of 2017 (translating into a $159.459 billion year-to-date AUM increase).

Yet, as ETFGI's numbers show, strategic beta isn't catching old school, market-cap weighted big beta any time soon. Traditional beta ETFs held $2.87493 trillion in AUM as of November 30, more than four times the AUM in smart beta ETFs. And traditional beta ETF AUM rose 36.9 percent in the first 11 months of 2017, translating into a $774.909 billion AUM rise, so old school ETFs are growing faster than smart beta ones on both an absolute and relative basis. With 2,689 traditional beta ETFs on the market and 1,321 smart beta ones, those AUM numbers translate to an average AUM per traditional ETF of $1.069 billion, compared to $520 million per smart beta ETF.

ESG ETFs, by comparison, are a much smaller bunch, just 33 in total by ETF.com's count. So far this year, according to ETF.com chief Dave Nadig, ESG ETFs have brought in $830 million in assets, a drop in the bucket compared to both traditional and smart beta ETFs.

"No, the flood hasn't happened," Nadig writes.

Yet none of those ESG ETFs suffered negative net flows this year, Nadig notes, and he describes 2017 as "a foundational year in which the ESG message has been received loud and clear." He predicts slow, steady, and long-term flows for ESG ETFs in 2018.

As for active ETFs (and other active ETPs), they've brought in $23.73 billion in net new assets in the first 11 months of 2017, according to data from ETFGI. Assets reached $73.5 billion as of November 30, across 420 products, with average AUM of $175 million per ETF. Active ETF AUM rose 53.4 percent in the first 11 months of 2017, proportionately faster than traditional or smart beta ETFs' AUM growth. Yet with the smaller asset levels, don't expect active ETFs to catch up to their more popular rivals any time soon. 

Edited by: Neil Anderson, Managing Editor

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