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Cerulli says US ETF industry set for active and thematic growth


The US ETF industry has reached assets of USD5 trillion over 2020, despite all the strains and volatility that the year has experienced, according to Cerulli Associates.

The firm says that as the industry grows even further, issuers will have an opportunity to generate meaningful revenues through a greater variety of differentiated exposures beyond the commoditised core.

Cerulli reports that the ETF industry is undergoing a momentous shift, with the majority (79 per cent) of US ETF issuers reporting that they are currently developing or planning to develop transparent active ETFs, despite only 3 per cent of ETF assets being currently held in such products. 

On a category level, product development focus remains on US fixed-income and US equity products, according to Cerulli, despite such categories being most likely to be rated as product-saturated by advisers. 

Instead, issuers may seek to launch thematic and environmental, social, and governance (ESG) products, according to Cerulli’s survey. 

“These products allow for greater differentiation and appeal to younger investors and advisers,” says Daniil Shapiro, associate director. Advisers are also more willing to use fixed-income ETFs (both passive and active), which are perceived to have proven themselves through COVID-19-related volatility, the firm says.

Several catalysts will help grow active ETF assets, the report claims. Driven by competitive market dynamics, eased regulation, and advisers’ willingness to use a wider variety of ETFs, the products offer issuers an avenue for differentiation. 

“As issuers increasingly perceive that the passive ETF landscape is product-saturated and fee-compressed, the ability to differentiate will be key to generating revenues,” notes Shapiro. 

Regulation in the form of the ETF Rule or Rule 6c-11 makes it easier for issuers to launch transparent active offerings, Cerulli says. Additionally, advisers indicate increased openness to using semi-transparent equity ETFs –  according to the research, half of advisers now report they would adopt the products within three years. 

Cerulli perceives strong first-mover advantages and notes that issuers that wait to launch such products are giving up the opportunity to compete for an addressable market in the hundreds of billions.

As the ETF vehicle transitions beyond passive exposures, investors will be able to use it to achieve more of their financial objectives, Cerulli suggests, adding that issuers should think about their role in serving client needs across their lifecycle as much white space remains for innovative exposures. 

Still, market saturation for key exposures (including the opportunities targeted by semi-transparent equity ETFs) requires a calculated approach, the firm warns. “Successful asset managers will need to ensure that the products are launched with intentionality and targeting distinct market segments – and not simply based on the urge to act,” concludes Shapiro.

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