The ETF industry will continue to grow in 2013 and more asset-management firms will hop on the bandwagon on fears of being left farther behind. If you can’t beat them, join them.
Indeed, PIMCO saw the writing on the wall and last year introduced PIMCO Total Return ETF (BOND) , the ETF version of the world’s largest mutual fund, managed by Bill Gross. PIMCO had several ETFs even before it listed BOND last year.
The $1.3 trillion business is on pace to rake in more assets while forging top quality products through tight competition and industry evolution.
In 2012 about 179 new ETFs were launched and 99 ETFs closed their doors. XTF data shows a 5.8% growth in the number of ETFs trading, and a 26% growth in assets under management. In 2013, trends within the ETF industry will continue to be positive and conducive to growth. The following 10 trends are composed by Dan Weiskopf and Dan Faucetta of Forefront Capital:
- Vanguard’s Index Change The move from MSCI to FTSE could have mixed results, however, it will validate the need to choose the proper index for an ETF to track. Weiskopf believes the index change is more about getting investors to buy international stocks than it is about cost savings. This also highlights the ETF fee competition taking place by major providers, where a cheaper fund is becoming less important than a fund that outperforms over the long term. [Vanguard Emerging Market ETF to Drop South Korea]
- Growth of the Actively Managed ETF The market share for actively managed ETFs will grow to over 1% in 2013, led by PIMCO and WisdomTree. Growth in this area of the market is not about assets, rather it can highlight how well active managers of ETFs and mutual funds can position themselves with solutions. Expect BlackRock’s iShares, State Street and others to be aggressive in this category, according to Forefront Capital. [Active ETFs May Boom After Sec Lifts Derivatives Ban]
- US ETF Asset Growth to Exceed $1.6 Trillion Cash on the sidelines for retail investors is at record levels, and ETFs that give broad based exposure are poised to capture these. ETFs within the 401(k) industry are underutilized and the big three providers, iShares, Vanguard, and State Street will continue to jockey for more assets. [ETFs Attract Record Annual Inflows]
- Asset Growth to Expand Beyond Mega ETFs About 82% of ETF assets are held in the largest 100 funds. Investors will be looking for more alpha generations from advisors.They will also seek alternative strategies such as low-volatility, dividends and tactical strategies.
- Dividend ETFs Continue to Flourish Dividend ETFs, as a classification, now pay about 80% of what high quality short term bonds pay. Dividend flows are a sign of health within a company so expect investors to continue to pay more for growing cash flows. [Dividend and Bond ETFs Will Stay Hot in 2013: S&P]
- ZERO Net New launches from Established ETF Issuers New launches will be overwhelmed by closures and does not include the anticipated Fidelity’s fund family launch. Net new launches in 2012 were just under 6% with launches totaling 179 and closures rounding out at 99. We believe in 2013 this trend will continue as the profitability of new funds becomes more challenging in the wake of potential pricing pressure. Areas of growth include commodities in foreign currencies, physically-backed copper, a restaurant ETF and active management in fixed income and the bank loan space.
- 3rd Party ETF Portfolio Managers Morningstar is tracking ETF 3rd Party Managers which at last report managed over $50 Billion. Managers listed in this database could grow by 40% in 2013 and AUM continue to grow at a rate of 50%, but distribution and scale remain the challenge. Larger portfolio management firms will continue to garner the majority of the assets.
- A new Independent Professional Distribution Company with a large scale will be Established This will bridge the gap between 3rd Party ETF Managers, small ETF issuers and prospective RIAs . The timing of this salesforce makes sense in this next phase of the growth of the ETF industry because of platforms like Placemark and databases like Morningstar. Growth in the RIA space and smaller boutique regional firms need a truly committed source of information about ETF products.
- Fidelity Continues ETF Business Growth Fidelity’s fight for ETF assets will continue with the development of a supermarket of ETFs and a role in the actively managed ETF space. Active sector funds are on the way from Fidelity and could be just as successful as the provider’s mutual funds. [Fidelity Fires Back in Ongoing ETF Fee War]
- Global Investors Will Allocate More to Asia for Outperformance China, South Korea, Singapore, Thailand, Indonesia and Malaysia all have ETFs available. There are over 31 different ways to directly invest in China using ETFs with AUM of $12.2 Billion. Emerging markets will play a key role in 2013 for broad market outperformance and will be a core piece of any diversified strategy. [Three International ETFs Riding a Growth Trend]
Tisha Guerrero contributed to this article.
The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.