By Salvatore J. Bruno, Chief Investment Officer and Managing Director for IndexIQ
Last month, several of my colleagues and I made what has become an annual pilgrimage to sunny Hollywood, Florida for the world’s largest ETF conference: Inside ETFs. Part marketing and sales event, part educational initiative, and part industry reunion, Inside ETFs is always a thought-provoking event and this year’s conference was no different.
In fact, even given the fact that we were coming off a relatively turbulent 2019, the overall mood of the conference was positive, dare I say refreshing, with both ETF firms and advisors seeming ready for the industry to grow in some new and innovative ways.
I wrote in my 2020 Outlook blog last month that we’re approaching an era of choice and change in the ETF industry and the major themes at Inside ETFs were further indications of just that. Among my key takeaways from this year’s conference:
When it comes to “choice,” the ETF industry has done a great job of delivering products designed to fit investors’ needs. And with the recent regulatory approval of a handful of different actively managed nontransparent ETF approaches, issuers themselves have been given a powerful new option for creating and packaging different solutions.
If there was a “dominant” theme at this year’s Inside ETFs, this was it, and it is clear that these new structures have already encouraged traditional active managers to start thinking about bringing new or existing strategies to the ETF marketplace without needing to “show their cards,” something that has long been a stumbling block for a number of active shops.
The opinion was definitely split at the conference as to just how much asset growth these funds will see between now and the end of the year, but for us, that sort of short-termism actually does the category, and investors, a disservice. Anything new will need time to develop so while we’re excited about the new choices these active nontransparent approaches will help create in 2020, we’re more interested in how this category evolves over the next 3 to 5 years. In short, ask me how this development has played out when you see me at Inside ETFs 2025, not 2021.
You Can’t Not Have an Opinion on ESG
If the active nontransparent space was the dominant theme of this year’s conference, ESG was not far behind. Numerous panels focused on how ESG burst into the mainstream in 2019 and how much growth the category seems poised to experience in 2020.
Inside ETFs also had all the ESG “swag” one can come to expect from any big conference these days – I now have enough metal straws and recyclable bottles to last several lifetimes – but I was also struck by the depth of the conversations my colleagues and I had with advisors and our peers in the industry, which included deep discussions of what ESG means (and how it may mean different things to different investors), how it’s classified, how it’s measured, the due diligence required in building an ESG portfolio, and what impact different ESG approaches may have on returns. Though the outlook for the further adoption of ESG-focused is encouraging, there remains a lot for all of us to do when it comes to education.
There were numerous other topics and highlights that we found very compelling during our four days in Florida, but those two key topics – active nontransparent and ESG – were the ones we found taking up a great deal of our thoughts and time. In an industry entering an era of choice and change, it will be fascinating to watch how both of these topics develop further in the months to come.
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ESG Environmental, social and governance criteria are standards for a company’s operations that socially conscious investors use to screen potential investments. Environmental criteria consider how a company performs as a steward of nature. Social criteria examine how it manages relationships with employees, suppliers, customers, and the communities where it operates. Governance deals with a company’s leadership, executive pay, audits, internal controls, and shareholder rights.
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