Top Takeaways From the Year Ahead in ETFs

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One thing that’s becoming more and more apparent in the finance world is the skyrocketing popularity of ETFs in the marketplace. All you need to know is that ETFs now account for in excess of $3 Trillion in assets. Here at Gregory FCA, we’ve had the opportunity to work with and learn from some of the brightest minds in the ETF space.

And, given the rapid increase in assets, it’s only natural that investors, analysts, portfolio managers and the like come together to explore the ins and outs, current and future trends surrounding ETFs as we kick off the new year.

Earlier this week, Villanova University’s School of Business hosted a panel discussion titled, “ETFs: Past, Present and Future.” The panel of top players, including Jim Rowley, CFA, senior investment analyst at Vanguard Investment Strategy Group; Wesley R. Gray, PhD, executive managing member at Alpha Architect, LLC; and Reggie M. Browne, senior managing director at Cantor Fitzgerald, shared their thoughts on where the industry is heading. The conversation ran the gamut, touching on points ranging from liquidity and tax-efficiency, to the role that actively managed, versus passively managed, ETFs will play down the road.

We’ve compiled the top three takeaways from the panel’s insights:

  1. ETFs are taking advantage of the direct to consumer trend. During the panel, Vanguard’s Rowley noted that ETFs have gained popularity with advisers due to their sensitivity to cost, while Cantor Fitzgerald’s Browne pointed out that institutional investors have adopted ETFs as a cost efficient way to capture global macro exposure. “ETFs have lowered the complexity of deploying assets and allow delivery of a wider range of solutions in the marketplace.” The panel underscored the shifts that ETFs have brought, highlighting the fact that investors can access ETFs directly cutting out some intermediaries, acting the way Amazon.com would for the consumer front, versus the old model of fund distribution, which could be equated to a supermarket where goods went from warehouse to storefront to consumer.
  1. Actively managed ETFs have different challenges than passive products. ETFs gained rapid adoption on the fact that they were low-cost, passively managed tools designed to capture exposure to an index. Actively managed ETFs, on the other hand, attempt to beat the benchmark indices and require the fund manager to report transactions daily. Gray, whose firm is the adviser to the ValueShares ETFs, notes that he, “believes in transparency, not black boxes,” when it comes to participating in the actively managed ETF space. He says, “I have no problem with daily transparency of holdings, even as an active ETF manager. Managers of active ETFs have already become disruptive to the entire active management industry.” Gray did note that the non-transparent vs. transparent argument related to holdings was more noise than news, with PhDs regularly able to replicate the holdings of managers who disclose quarterly.
  1. Both ETFs and mutual funds have a place at the table, at least for now. The debate between ETFs and mutual funds will likely rage for some time. As a matter of perspective, however, Rowley noted that if ETFs were founded before mutual funds, then mutual funds would eventually overtake ETFs in popularity. Rowley notes that, “it comes down to what the individual investor is interested in,” when determining which investment vehicle is most suitable. So, while ETFs are increasing in popularity, both vehicles will remain vital players at the investment table for years to come.

It’s clear that ETFs will acquire more market share in the future, and as this happens, we’ll be watching to see how the industry adapts and transforms.