Smart Beta ETFs Gain Traction as New Entrants Enter Space
Exchange-traded funds (ETFs) representing derivatives and alternative strategies were the most popular type of product launched during 2015, based on a review of new ETF products serviced by BNY Mellon during the nine months to September 30, 2015. Alternatives and derivatives-based ETFs accounted for 25 percent of new funds over this period, continuing the trend seen in 2014 when they accounted for the same percentage.
Smart beta ETFs accounted for 12.5 percent of new launches, fixed income accounted for 6.25 percent, and actively managed ETFs accounted for five percent. BNY Mellon serviced a total of 64 new funds in the nine-month period.
Speaking at BNY Mellon's annual ETF Symposium in Dana Point, California, Steve Cook, business executive, structured product services at BNY Mellon, said, "Growing interest from registered investment advisors looking for downside protection appears to be an important driver of the growth of alternatives-based ETFs. In addition the possibility of rising interest rates has advisors looking for alternatives to fixed income investments. The structure and tax efficiencies of ETFs enhance the attractiveness of this type of investment."
He attributed the increase in smart beta ETFs launched and serviced by BNY Mellon in 2015 to the increasing number of entrants developing these offerings. In 2014, this type of ETF accounted for 4.4 percent of BNY Mellon's new ETF strategies. The number of actively managed ETFs launched in 2015 declined to five percent from 25 percent in 2014, BNY Mellon said.
"We attribute the lower level of actively managed launches in 2015 to pending regulatory rulings on this segment of the ETF market," said Cook. "Many firms with these active offerings in the pipeline are awaiting the outcomes on these rulings before moving ahead. We expect a significant upswing in actively managed ETF launches once the new regulations become clear."
BNY Mellon is one of the world's largest ETF servicers, and this is the fourth year that it has hosted its ETF Symposium, which highlights best practices and strategies for registered investment advisors, sponsors, investors and other participants in the ETF Industry.
"The BNY Mellon ETF Symposium continues to attract registered investment advisors and other financial professionals who depend on ETFs as part of their investment strategy," said Frank La Salla, chief executive officer of BNY Mellon's Alternatives Investment Services and Structured Product Services. "Attendees have told us the symposium helps them gain insight into the way their peers view a range of topics such as balancing active and passive strategies and how ETFs can provide efficient access to a wide range of asset classes."