US-based ETFs took in nearly USD110 billion in December 2021, a 20 per cent increase from the prior month of November, says Matt Camuso, ETF Strategist at BNY Mellon Investment Management, who comments that growth for BNY Mellon’s range of ETFs has also been fantastic, with their index suite crossing over USD1 billion last year.
“From a flow standpoint, we have experienced positive flows throughout recent volatility, which comes from a dual opportunity set,” Camuso says, noting that investors may have built up capital gains tax exposures making it a challenging move for advisers to make.
“From the total cost of ownership perspective, more volatility presents advisers with the opportunity to switch to a position that they wanted to beforehand and couldn’t because of the gains built up. A benefit of the ETF wrapper is that intraday capability and you do see volumes pick up when volatility kicks in. Broadly speaking the result is an increase in trades.”
The ETF wrapper has also allowed price discovery on ETFs that were targeted to Russia, he says. “The ETF wrapper allowed you to have that price discovery when the market was first closed.
“Once the market stays closed issuers and the exchanges make the critical decision to delist or stop creations and redemptions – this particular scenario is very unique, but this type of price discovery in international markets happens every day on US listed ETFs – when the markets close overseas the US ETF continues to trade, and the international securities typically will reprice to where the US ETF is the following day when the market reopens.”
Camuso notes that in certain classes, active ETFs are growing, commenting that across the international developed and emerging markets, clients like a core satellite approach, combined with an active manager.
December of last year saw BNY Mellon Investment Management launch the BNY Mellon Concentrated International ETF (BKCI), an active, fully transparent ETF sub-advised by Walter Scott & Partners, a BNY Mellon investment subsidiary and global equity specialist. “This is a best ideas portfolio which has the potential to increase your risk/return profile when combining with a passive strategy in the space” Camuso says, also commenting on the firm’s ESG offering, which again draws on in-house expertise, sub-advised by ESG specialists Newton Investment Management.
“Newton says, ‘we use data from some of the ESG index providers, but we put a human element on top of it,’” Camuso says. “They ask ‘do we agree with that rating?’ ‘What are the fundamentals of the underlying company?’ What is the p/e ratio etc.?’ This means that if we take an active approach in ESG investments, we can also invest in a company that is working toward a more sustainable goal and help them on that journey.”
Camuso notes that more than 60 per cent of ETFs launched last year were active. “Lots of issuers were using ETFs to deliver their new strategies to the market,” he says.