Natixis Investment Managers, with USD1.4 trillion under management, was the first to gain approval from the SEC for custom baskets in actively managed semi-transparent ETFs in 2021.
“We are seeing an increasing number of ETF launches that are active,” Elward says. “Beyond that, sales interest has increased too. In 2019 active net flows were USD26 billion but through the end of October 2021 we have seen USD74.9 billion in active net inflows – close to tripling where we were three years ago.”
Assets in their semi-transparent ETFs have not grown dramatically, he says, with the broker/dealer firms slow to adopt them, something that he says is not a surprise. “As a product person I am happy that our performance has been strong and that trading spreads have been tight, even tighter than active transparent ETFs. Our value proposition has been great.”
The semi-transparent ETF space has grown to over 40 products now. “From an issuer perspective, the launches indicate that there is an interest, with assets of USD5 billion overall. Some have had better success in generating assets as they had clients waiting in the wings to invest in those products and others from sister mutual funds.”
The US ETF structure has a a great tax advantage not available in all other vehicle types, but Elward hopes that his firm can further enhance this tax efficiency, utilising the recently approved custom baskets.
“Custom baskets will allow us to customise the creates and redeems which will give the effect of more efficient transactions, keep the costs down and increase our tax efficiency. Our goal for 2022 is to further increase the value we are providing to our investors across all the spectrums.”
Elward says that his firm puts pressure on itself to produce new and innovative products. “It is rewarding to bring something to market that stands out,” he says. “We are focused on researching new products that highlight active management and investment strategies that cover off on investors’ key asset class needs”.
Elward is watching three key themes in 2022. “After a strong 2021, I believe active ETFs will continue to be a key story in 2022. I am also watching cryptocurrency very carefully. There has been more activity in terms of cryptocurrency product launches outside the US than inside of the US. While there are three live bitcoin futures-based ETFs in the US market, there are no spot crypto products yet. I expect that to change in 2022.
“I believe 2022 will bring additional crypto ETF launches, maybe in other cryptocurrencies and I believe that we are going to see a spot product at some point, maybe late next year or the following year.”
Elward’s final theme is around fixed income ETFs. “We are closely watching the level of interest rates in the US and with the expected increase in rates, we foresee more investor interest in short duration ETFs.”