Record inflows for 2025 and the first quarter of 2026 for global ETFs reflect the growth in the big picture for ETFs, says Ben Slavin, Industry Head of ETFs at BNY, responsible for overseeing the USD3 trillion servicing ecosystem at BNY.
“ETF flows are at a record but at this point it feels like old news as we see the headlines on a daily basis,” Slavin says. “It’s assets flows, the number of managers launching products around the world and, from a BNY perspective as a large global player, we have seen that growth coming from a more diversified base.”
Slavin reports 1,1167 new ETFs were listed in the US last year, with his firm bringing on more than two products a day onto their global platform.
The US data for ETFs for just a few weeks in early March saw a spike in the percentage of volume on a notional basis that was traded on US exchanges crossing 40 per cent of the total volume of US trades.
“This means that for every USD10 traded on the US exchanges in total, at least USD4 was in ETFs,” Slavin says.
The new inflows are coming from organic growth, but also new products coming from existing clients such as established ETF issuers, but also what Slavin calls the takeaway business.
“The takeaway business is where we are winning firms that have moved to BNY and we are also seeing activity from new issuers with first time ETF entrants and also from clients who are moving cross border launching in Europe or another jurisdiction and also the reverse where European domiciled managers are looking at the US market and its growth opportunities going west-bound and bringing a product on their own or with a partner.”
The BNY Group has its own investment managers managing ETFs which have seen record growth and also Pershing, its distribution platform which is seeing increased adviser use with advisers who chose to use the firm’s platform.
Slavin also sees a rising interest in actively managed ETFs from its clients.
“During the recent volatility, what we see is ETFs really shining in periods of market volatility. Even just a few weeks ago, in early March, right after the market had a bout of volatility based on geo-political events, ETF volume spiked with ETFs serving as a liquidity outlet and offering price discovery in volatile markets.”
Slavin observes that ETF investors are turning to actively managed ETFs in volatile markets. “But it doesn’t explain it all,” he says. “A bigger piece is the availability of the products generally, secondly many actively managed products are beginning to scale which makes investors more comfortable, and thirdly it’s changing, but as these products are launched, more and more are accumulating live track records.”
Key growth has come in option products designed to offer income or a buffer against market volatility.
“In this case, we see in volatile markets these products provide investors with opportunities to get exposure to the market but with a hedge or an income type product capturing additional income but giving up upside and gaining downside protections.
“They are coming to Europe as well with the initial wave as issuers being aggressive to carve out a space with these products.”
And it’s not all about the actively managed ETF. Passive ETFs are continuing to grow and the number one selling ETF in the US is still based on the S&P 500. “It’s the same pattern in the global markets, where the local benchmark is near the top of the leaderboard in terms of flows but you are seeing the breadth of products come in everywhere.
“Active is growing faster but it’s got a long way to catch up to passive. We are seeing more of a story about the breadth and faster growth of active but passive is doing just fine,” he says.
“We saw a spike in investors allocating to the shorter end of the fixed income curve in the last few weeks, where they wanted to take risk off the table and index-based short and the actively managed version both grew in tandem.”
The other hot topic in the US has been the introduction of ETFs as a share class. Currently some 98 managers have filed with the SEC to launch a product, 70 have received approval, six have filed a prospectus and offering documents and just three, if you include the F/m Investments product have launched, with offerings from Dimensional Fund Advisors and Thornburg Investments.
“We are working with a number of different issuers with different states of readiness or decision making as to which products they will bring to market and we expect to have to support multiple clients in the back half of the year,” Slavin says.
“More interesting is the readiness of the platforms – from an asset servicing standpoint we are ready but when will the distribution platforms be able to service at scale and in an automated fashion?”
Slavin says that the industry has come together and a solution will run through the Depositary Trust Company (DTC) as it makes upgrades to standardise the daily files. The work continues, with Slavin reporting that it will be done by the end of the second quarter.
“Beyond that, there will be some period of time for the distribution platforms to be able to pick up that file, ingest it on their systems and automate the share class exchanges. As a client, you want to hit the easy button and say ‘I have a mutual fund and click and it will show up the next day as an ETF.”
ETF industry observers note that while ETFs are coping during these spikes in volume on exchange and during periods of market volatility, the issue remains that so many new products, in so many new markets, are testing the strength of the marketmakers and authorised participants.
“The question is will there be a limit or stumbling blocks to bringing new products to market because of the ability of the liquidity providers to support them, seed them and provide liquidity to all these products if we continue to see growth at this pace,” Slavin says.
“I will tell you in dealing with hundreds of products we have not heard or seen any impact yet of clients saying: ‘We want to bring these new ETFs but I can’t find a marketmaker or get seed capital’.” Slavin says.
“The bigger challenge is that as ETFs expand into more exotic areas, it narrows the pool of liquidity providers who can service that product such as digital assets or private market ETFs.”
