Page 36 - Investment Advisor - December 2021

NEWS of the YEAR

Asset flows into ETFs through the third quarter of 2021 The increasing popularity of ESG investments often is
were $630.5 billion — almost twice the flows into open-end cited by asset managers and others as an example of a values-
mutual funds, which collected $323.4 billion, according to oriented approach to investing, which, in other words, aligns
Morningstar. Though mutual funds still account for three investors’ values with their investments.
times the assets of ETFs — $20 billion vs. $6.6 billion — the
gap between the two fund types continues to narrow as mutual
funds lose assets and ETFs gain them. Also growing in popularity in 2021: direct indexing. With
There were 380 net new ETF launches in 2021 as of direct indexing, a portfolio is constructed to replicate an index
Sept. 30 — 25% more than launched for all of 2020, according of securities by purchasing the underlying equities instead of
to Todd Rosenbluth, head of ETF and mutual fund research an ETF or mutual fund. Cerulli Associates projects that direct
at CFRA. Almost two-thirds (63%) of the new launches were indexing assets, which currently total over $300 billion in
actively managed ETFs while 49 were focused on environ- separately managed accounts, will grow at a 12.4% annualized
mental, social and gov- rate over the next five years, topping even the growth rate for
ernance factors. ETFs, projected at 11.3%.
More asset managers The portfolio is customized to fit an investor’s priorities,
who were not involved stressing stocks that align with their values and omitting
in the ETF market at those that don’t.
all or in any substantive Major asset managers including Vanguard and Morgan
way introduced new Stanley acquired firms specializing in direct indexing in 2021.
ETFs in 2021, in part to BlackRock bought a minority interest in one.
stem the outflows and
cater to financial advi-
sors who preferred the In addition to those portfolio-linked developments based on
ETF structure to mutu- traditional assets in 2021, cryptocurrency assets became one
al funds for myriad reasons including tax efficiency. of the most talked about — and most volatile — asset classes.
Dimensional Fund Advisors converted six open-end mutu- Prices of Bitcoin, the most popular cryptocurrency, reached
al funds to ETFs (20% of DFA’s assets are now in ETFs); a record high topping $67,000 on Oct. 20 and remained above
Putnam Investments launched its first-ever ETF; Vanguard $60,000 through early November.
introduced its first actively managed bond ETF; and Schwab Much attention — some would call it hype — has been paid
announced plans to introduce its first active ETF — also its to the possibility of a spot Bitcoin ETF coming to market as
first ESG-focused ETF — in mid-November. over a dozen applications from asset managers to trade a spot
In addition, T. Rowe Price, which added its first ETFs in Bitcoin ETF are pending before the SEC.
2020, launched its first bond ETF in 2021. Many of the active The agency has 240 days from the day an ETF applica-
ETFs are semi-transparent, meaning they don’t disclose their tion is submitted to
actual holdings on a daily basis to protect against front- issue a final deci-
running, according to the fund companies, and they publish a sion. On Nov. 12,
proxy-like portfolio instead. the SEC rejected
The growing number of ETF launches is not surprising the application for
given the increased flow of assets into ETFs. Through the the VanEck Bitcoin
third quarter of 2021 asset flows into ETFs were $630.5 billion Trust, the first spot
— almost twice the flows into open-end mutual funds, which Bitcoin ETF to
collected $323.4 billion, according to Morningstar. come up against the
Among the new launches is a growing number of environ- 240-day deadline
mental, social and governance ETFs, continuing a recent trend in the latest batch
to match investor demand. Forty-nine ESG ETFs launched of Bitcoin ETF
over the first three quarters — compared to 41 for all of 2020, applications before
according to Rosenbluth. the agency.
One example of the popularity of ESG ETFs: almost one- The SEC said the
third of flows into iShares ETFs, or $32 billion of $98 billion, listing exchange, which is the Cboe, failed to demonstrate it
were directed into ESG ETFs during the third quarter, marking had sufficient means “to prevent fraudulent and manipulative
a quarterly record. acts and practices.”

34 INVESTMENT ADVISOR DECEMBER 2021 | ThinkAdvisor.com