Flurry of ETFs Come to Market

Large asset managers that have been slow to cash in on investor demand for ETFs are now trying to grab a slice of the market.

By Suzanne McGee

Large, established asset managers that have been slow to cash in on investor demand for exchange-traded funds are now trying to grab a slice of the market with a flurry of new ETFs and also by converting existing mutual funds into ETFs.

Goldman Sachs and Calamos Investment Management recently established actively managed ETFs. Morgan Stanley announced plans to convert two of its actively managed mutual funds into ETFs.

The moves demonstrate the eagerness with which asset management firms that are relatively new entrants are embracing ETFs, which are cheaper and more liquid for investors than traditional mutual funds.

Around 75% of the 376 new ETFs launched this year through Oct. 6 were active, according to Morningstar Direct. That means that rather than tracking an index, a manager or team is selecting assets aimed at reflecting an investment strategy or outperforming a specific benchmark.

That compares with 63% last year and 36% in 2019 when U.S. securities regulators opened the doors to the product.

Lower fees, strong liquidity and transparency have steadily lured investors away from traditional mutual funds and into ETFs over the past five years. U.S. ETF assets have doubled to reach $7.4 trillion. That accounts for nearly 30% of assets managed by all U.S. firms in mutual funds or ETFs, according to Morningstar.

Mutual fund assets, meanwhile, fell 14% to $15.3 trillion.

Slow to act

Traditional asset managers that built their reputations offering mutual funds are now trying to respond.

“Some industry participants are playing catch-up,” said Brendan McCarthy, head of ETF distribution at Goldman Sachs Asset Management which launched a small-cap active ETF last week. It manages six other active ETFs, and 36 ETFs in total.

While active ETFs only account for 6% of the market, their assets have grown at a rate of 23% so far this year, said Bryan Armour, a Morningstar analyst. That compares to asset growth of only 4.5% for the traditional passive index ETFs in the same period.

Many established asset management firms eager to capture a share of the rapidly growing ETF market have identified their stock-picking skills as a competitive advantage.

“This is very much the direction of travel for us,” said McCarthy.

Calamos Investment Management is another established manager trying to leverage its brand name and expertise by investing in what are known as “convertible bonds,” securities that pay out yields like bonds but that can be swapped for the underlying stocks. It rolled out an active ETF to draw on that expertise last week.

“We think this is something distinctive, that draws on our analytical knowledge of the market,” said Matthew Kaufman, who joined Calamos in January to head its fledgling ETF business.

Converting an existing mutual fund is another way traditional managers can catch up while also retaining star managers, said Aniket Ullal, head of ETF data and analytics at CFRA, an investment research firm.

“Conversions give a firm the opportunity to leapfrog up the leaderboard,” Ullal added.

Assets held in converted ETFs now tally some $78 billion, compared with $40 billion at the end of 2022, Ullal said.

Morgan Stanley is among the latest managers to join the conversion rush. It plans to transform its Core Plus Fixed Income Portfolio fund and the Short Duration Municipal Income Portfolio fund, which have nearly $750 million in assets, into ETFs. Morgan Stanley didn’t return calls seeking comment.

The article was provided by Reuters.

Latest news

Black Swan Fears Drive Caution, Plus 60/40 Three-Decade Performance

VIX sees record trading as looming economic and geopolitical risks keep investors cautious about a potential return of volatility.

Carson Group: Still Too Few Women in Wealth Management

Its latest report confirms the industry has made little progress in gender diversity despite a lot of talk.

Supreme Court Seems Wary of SEC’s In-House Tribunals Without Juries

The Supreme Court discussed a case involving a hedge fund manager in which the SEC brought a civil enforcement proceeding that charged he mislead investors.

Annuity Sales Continue March Upward

Annuity sales are set to have another record-breaking year, based on results in the third quarter.

Humana, Cigna in Talks to Merge

A deal would give Cigna a much greater foothold in the fast-growing market for managing federal Medicare plans for older Americans.

Aretha Franklin’s Sons Awarded Late Singer’s Real Estate

They now own the late singer's real estate after a judge ruled that a handwritten will found hidden in her sofa was the correct document.