Actively Managed Strategies and AI Investments Fuel Growth in ETF Industry
The Exchange Traded Fund (ETF) industry has experienced a surge in popularity, with actively managed strategies leading the way. Inflows from these strategies accounted for about a quarter of all investments in 2023. This trend was evident at the annual Exchange ETF conference, held at the Fontainebleau Hotel in Miami Beach, which attracted over two thousand attendees.
One of the key challenges faced by investors and financial advisors is identifying what constitutes an Artificial Intelligence (AI) investment. Moreover, determining which companies are exposed to AI can be equally challenging. However, there is good news for forward-thinking investors, as there are now amazing AI tools available that can assist financial advisors in making informed investment decisions. These tools have the ability to generate a whole podcast simply by inputting text, without ever saying the actual words.
Investing “ex-China” has also become a growing trend. As China ETFs faced a decline in late 2022, investors sought alternative emerging market exposure. The iShares Emerging Markets ex-China ETF (EMXC) experienced a drastic increase in inflows from investors who still wanted exposure to emerging markets, but preferred to avoid China.
With assets under management now surpassing $8 trillion, the ETF industry is at a crucial juncture. While indexing and passive investing were the main impetus behind ETFs when they first emerged 30 years ago, the industry must now expand its offerings of active management and find innovative ways to attract investors. This is especially important as smarter, younger investors who started investing during the pandemic comprehend the challenge of outperforming the market.
Covered call strategies, such as the JPMorgan Equity Premium Income ETF (JEPI), have proven popular among investors seeking protection during market downturns. However, with the broad markets hitting new highs, it remains uncertain whether investors will continue to pour money into these strategies.
The ETF industry is betting on Bitcoin ETFs to drive significant inflows in 2024. Ten spot Bitcoin ETFs have already been successfully launched, although inflows into these ETFs have been modest thus far. Nevertheless, Bitcoin ETFs are seen by some advisors as a bridge between traditional finance and the cryptocurrency community.
Artificial Intelligence ETFs, including IRBT, ROBT, and BOTZ, have also regained popularity among investors. Jason Pereira, a noted speaker, shed light on how financial advisors are effectively utilizing artificial intelligence in their investment strategies.
Notable new entrants in the ETF space include Roundhill’s Magnificent 7 ETF (MAGS), which has attracted over $100 million in assets under management within a few months. Additionally, there has been a significant influx of investments into technology ETFs, such as Apple, Microsoft, and NVIDIA. Modest inflows have also been seen in communications giants Meta and Alphabet, as well as consumer discretionary leader Amazon.
Financial advisors are eager for guidance on addressing the concentration risks associated with investing solely in big-cap tech companies and developing long-term allocation strategies. Alternative approaches, such as ETFs that invest in option overlays, as well as quality and momentum investing, have demonstrated considerable success recently.
In a growing industry centered around numbers and performance, some experts are advocating for a shift towards a more personal and emotional approach. Leading this shift are Brian Portnoy and Neil Bage, who will be guiding a panel on how financial advisors can engage with their clients on a deeper level, fostering stronger connections beyond just financial metrics.
The ETF industry is shifting and evolving to adapt to changing market dynamics and investor preferences. As actively managed strategies, AI investments, and the emergence of new ETF offerings take center stage, the industry aims to continue its growth trajectory in the years to come.
Analyst comment
Positive news: Actively managed strategies and AI investments are fueling growth in the ETF industry. Inflows from these strategies accounted for about a quarter of all investments in 2023. The industry is expanding its offerings of active management and finding innovative ways to attract investors.
Short analysis: With assets under management surpassing $8 trillion, the ETF industry is at a crucial juncture. It is adapting to changing market dynamics and investor preferences by focusing on actively managed strategies, AI investments, and new ETF offerings. The industry aims to continue its growth trajectory in the years to come.
