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Eric Balchunas, Bloomberg Intelligence
Eric Balchunas, Bloomberg Intelligence

ETFs likely to see an uptick of trillions in assets: Bloomberg Intelligence


ETFs will likely see an uptick of trillions in assets to their already strong flows over the next decade as more roads open up for legacy mutual funds to bring over their strategies and clients in a way that fits their needs, according to Bloomberg Intelligence’s new 2024 US ETF Outlook report. 

Highlights from the report include: 

1. Majority of USD18 trillion in mutual fund assets headed for ETFs

As more advisers and retail investors show strong preference for the ETF format, many traditional mutual fund managers are looking to meet them there, so they don’t lose them forever. These legacy funds now have three main ways to move these customers – and their USD18 trillion in assets – over into ETFs. They can launch a clone of the mutual fund, convert the mutual fund or potentially create an ETF share class. All have pros and cons depending on the circumstances.

2. Mutual fund to ETF conversions grow

According to BI, there could be around USD1 trillion in mutual fund to ETF conversions by the end of this decade. There have been USD100 billion in completed or announced conversions, led by some of the biggest names in mutual funds including Dimensional, JPMorgan, Fidelity and Neuberger Berman.

3. ETF share class can free assets ‘stuck’ in DC plans

Another road into ETFs is creating an ETF share class. This could be a way to tap into the USD9.5 trillion in mutual fund assets that are deeply embedded in defined contribution plans such as 401(k)s and IRAs, which makes conversions much harder. This option only became a possibility this year as Vanguard’s long-held patent on it expired.

Eric Balchunas, BI Senior ETF Analyst, says: “Legacy active managers doing conversions or share classes or clones will likely be an industry growth engine for the next two decades, we believe. After struggling for years, they’ve finally found success, grabbing a record 21 per cent of net new flows into ETFs. That’s helped to inspire more launches, leading to more flows – an upward spiral that will continue to feed off itself.

“This year, active ETFs have accounted for 71 per cent of the nearly 400 ETFs launched – another record and up from 20 per cent five years ago. The issuers tend to be big, combining for trillions of dollars in legacy mutual fund assets. Index-based ETFs are still taking in nearly 80 per cent of net flows, though for years that number topped 95 per cent. We think it will continue to go down as more issuers launch active products and the fees keep dropping.”

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