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Important points
- A record number of exchange-traded funds (ETFs) were created in the United States in 2023.
- An increase in active ETFs, the addition of ETF share classes to existing mutual funds, and a shift to more structured products were hallmarks of a record year for this market.
- One ETF data analyst said he expects cryptocurrencies and SEC regulation to become more prominent for ETF investors in 2024.
The record number of exchange-traded funds (ETFs) created in 2023 shows that pooled investment securities have captured the attention of a wide range of investors.
Aniket Ural, head of ETF data and analysis at CFRA, said notable trends in the ETF market over the past year include the increase in active ETFs, the addition of ETF classes to existing mutual funds for tax benefits, and He told Investopedia that these include a shift to structured products. .
The analyst also shared his predictions for the year ahead, driven by crypto ETFs and regulatory action by the Securities and Exchange Commission (SEC).
Start breaking ETF records in 2023
ETF creation reached a record high in 2023.
Through Dec. 15, 506 U.S.-domiciled ETFs were launched, surpassing the previous record of 475 set in all of 2021, according to data provided to Investopedia by Morningstar Direct.
Trends in 2023: Active ETFs, Mutual Funds, and Structured ETFs
In addition to the increase in ETF creation in 2023, Ural also noted an increase in active ETFs, mutual funds offering ETF share classes, and structured products.
Active ETFs are ETFs where the fund manager determines the allocation of the underlying portfolio, rather than using a passive investment strategy that tracks the performance of an index.
In 2023, nearly two-thirds (65.3%) of listed stocks were considered active or not associated with a specific index, whereas in the period 2000-2022, On average, less than a quarter (22.8%) of stocks had these characteristics. Convert to CFRA data.
Another notable trend in 2023 is that a few large fund managers are looking to add ETF classes to existing mutual funds to reduce their clients’ tax burdens, as this option becomes more widely available. This is what I applied for. Other brokerages will adopt this strategy as well, as Vanguard’s patent expires in May 2023, lowering capital gains taxes by structuring its ETFs as a separate share class of mutual funds. may start to be adopted.
Vanguard’s ETF competitors, including Fidelity and Dimensional Fund Advisors, have begun filing with the SEC to issue classes of ETF shares for existing mutual funds.
Ural also highlighted that in recent years there has been a shift towards more structured products, such as option-based ETFs and defined outcome ETFs. For example, Goldman Sachs has launched two of his ETFs: the S&P 500 Core Premium Income ETF (GPIX) and the Nasdaq 100 Core Premium Income ETF (GPIQ).
These ETFs use the Standard & Poor’s 500 Index and the Nasdaq 100 Index as benchmarks and provide “relatively stable monthly profit distributions” by tracking companies on those indexes, Goldman said. . The company said these types of structured products are particularly attractive to investors experiencing periods of market volatility.
What to watch in 2024: SEC and crypto ETFs
In the new year, SEC actions, particularly those related to the Vanguard Model ETF share class of legacy mutual funds and spot Bitcoin ETFs, could be a hot topic for ETF investors.
After Vanguard’s patent expires in early 2023, some competing asset managers have filed with the SEC to launch their own ETF class shares for mutual funds. However, the ETF giants appear to have been in no hurry to introduce hybrid mutual fund/ETF models, as potential regulatory concerns loom as the process impacts federal tax revenues. It is thought that this is because of this.
Ural said it is not yet clear whether the SEC will approve applications by other fund managers, including Fidelity and Dimensional Fund Advisors.
Another trend in this space that Ural foresees for 2024 is crypto-focused ETFs.
From an asset size perspective, cryptocurrencies are small, but considering investor interest, cryptocurrencies will be “important” in the new year, with “a spot Bitcoin ETF likely to be launched” in 2024. Yes, Ural said.
In August 2023, a federal appeals court ruled in favor of crypto asset management company Grayscale, finding probable cause to block Grayscale’s request to convert the Grayscale Bitcoin Trust (GBTC) into an ETF. The SEC found that it was not provided.
The SEC had denied Grayscale’s ETF conversion request, citing security concerns about fraudulent and manipulative market activity.
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