ETF assets are on a roll and currently predicted to grow to USD50 trillion by 2030, driven by their improved regulatory status in the US, with the arrival of the ETF rule, and the rise of active funds, including the semi and non-transparent version. July saw the launches of actively managed ETFs exceed passive ETFs for the first time.
Compliance and consulting firm Foreside’s Senior Managing Director and General Counsel, Jennifer Hoopes, says: “It’s been a very interesting year.”
“We are seeing increased interest in ETFs because the two really big things that have happened are the ETF rule, Rule 6c-11, and the SEC’s approval of non- and semi-transparent ETFs. Our client American Century was the first to market in Precidian Investments non-transparent ETF model so it’s been very exciting for us to be a part of that.”
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“The new ETF rule has enabled most traditional firms to come to market without having to go through the exemptive relief process with the SEC which has removed a huge impediment so firms can get to market quicker and more easily.”
Previously, Hoopes reports, lots of firms went into a trust model so they could avoid that process but now they have the opportunity of doing more so Foreside is seeing interest from smaller and mid-size advisers who want to enter the ETF space.
“The more opportunities there are for advisers to get out there with their strategies and various wrappers, the more opportunities there are for investors to benefit from that.”
The switch to active funds over passive has been a relatively new phenomenon, Hoopes says.
“It’s been really interesting because over the past year or two years there has been a constant conversation on the move from active to passive but we are also seeing the rise of active ETFs, especially with semi and non-transparent options, making them more available and managers more willing to put them forward.”
“We have also been watching them with the struggles in the market, during the pandemic and lockdowns, and seeing even more opportunities for better performance in some of the active vehicles.”
Hoopes believes that the industry will see more active managers bringing out their products. “The ETF is a wrapper and can be just the right wrapper for your investor channel. The ETF rule and semi and non-transparent ETFs are just more options for managers to find the right wrapper for their marketplace.”
Getting into the details of explaining the ETF wrapper has also kept Hoopes occupied. “We have been working with a lot of managers and helping them understand some of the differences between the mutual fund space and ETFs, for example, the need for a market maker and authorised participants and the importance of lining up your index and getting the right index provider. It’s a very exciting process for us.”
“We help managers through the whole process, including what their relationships with service partners might look like.”
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