ETF Growth Vacations In August
The ETF Think Tank is a community of advisors focused on a client-centric approach to investing through the use of ETFs. Each week we disseminate research on the growth of the ETF industry including key performance indicators (KPIs) on number of ETFs listed, assets, revenue, exchange market share and number of issuers. This data is useful in serving to monitor the trends in the ETF ecosystem. ETF Think Tank produces this monthly report for ETF.com.
Fixed Income August’s Flow Story
It was clear from ETF flows that investors and/or traders were concerned about a risk of recession. However, we caution that ETFs flows can reflect short-term tradability and liquidity for decision makers, so they can be misleading at times.
Unless you know the who and the why, you can’t always be certain about the impact and the reason. From an ecosystem perspective, the trend toward investors embracing more fixed income ETFs makes a great deal of sense.
The first bond ETF was launched July 26, 2002, by BlackRock’s iShares, roughly a decade after the first equity ETF.
(An ETF Nerd challenge: Why were the iShares iBoxx USD Investment Grade Corporate Bond ETF (LQD) and the iShares 20+ Year Treasury Bond ETF (TLT) launched before the iShares Core U.S. Aggregate Bond ETF (AGG) on Sept. 22, 2003? Maybe Mathew Tucker at BlackRock knows?)
Either way, it sure didn’t hurt the success of AGG, which today sports $65.8 billion in assets under management.
Closures Quietly Eclipse Launches
With only four new launches occurring in August, ETF Nerds will not be surprised to read that closures exceeded launches in the month and led to the total number of U.S. ETFs declining to 2,278 from 2,288.
Over the past 12 months, the number of listed ETFs is still up 7.7%, while 242 launches versus 167 closures of 167 means that the open-to-close ratio softened further to 1.45. Seasonality influences new launches, and we have already seen four launches in September.
Assets Down, Average Expense Ratio Steady
As of Sept. 1, 2019, U.S. ETF assets also declined to $3.968 trillion, a sequential decline of 1.49% from the record month-end high of $4.028 trillion.
Another KPI measures revenues derived from expense ratios. That showed a slight decline sequentially to $7.45 billion from $7.68 billion. The average expense ratio remained steady at 0.19%, buoyed by nontraditional and active ETFs.
Market Share Gains
Fee compression may be a slow continuum, but with increased assets, the projected 12-month revenue increased from $6.83 billion in January to $7.45 billion today.
The revenue also continues to diversify away from low-cost, traditional beta and toward nontraditional passive smart beta ETFs and active ETFs.
The percentage of ETF revenue from nontraditional passive ETFs in January was 36.38%; today it’s 38.98%. Active ETF revenue also gained market share, growing from 5.11% to 5.64%. These KPIs help show that investors are still looking for interesting and creative strategies to help diversify their portfolio.
Exchange Market Share Remains Constant
There has been very little material movement in terms of exchange market share of ETF listings in 2019, with NYSE remaining in the dominant position at 69.71%. Nasdaq has 16.26% and Cboe Global Markets, parent company of ETF.com, remained at 13.98%.
Decline In Issuers Continues (140 vs 144)
The number of branded issuers fell to 140 due to reshuffling and/or consolidation of platforms. The ETF sponsor business is a matter of scale, persistence and reach, not just of good ideas. Since the beginning of the year, new issuers have increased from 133 to 140, a 5% uptick.
In 2019, we have seen a number of players in the ETF market consolidate, such as Victory Shares taking over USAA ETFs. We expect this number of ETF issuers to be fluid.
Contact Dan Weiskopf at dweiskopf@torosoinv.com
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