Episode summary
Same Portfolio. Different Results. It's About Location.
Summary
Active ETFs have moved from a niche product to a major growth area because a 2020 regulatory change opened the market to far more active strategies. Brandon Clark says the result has been a surge in product availability, with active ETFs now a little over $1 trillion in assets out of roughly $14 trillion in total ETF assets, leaving significant room to grow.
Clark argues there is still major white space because about 5,000 mutual funds and roughly $14 trillion in mutual fund assets do not yet have ETF counterparts. He says firms are responding with mutual fund-to-ETF conversions, ETF clones, and brand-new strategies that may work better in the ETF wrapper, including buffered products designed to protect against downside moves.
For advisors, Clark says the two biggest ETF advantages are operational efficiency and tax efficiency. ETFs trade and price intraday, which makes portfolio management and rebalancing easier, and he says they can add 100 to 150 basis points of after-tax value versus mutual funds. He also says due diligence still matters, but advisors should also ask whether a manager understands how to run an ETF tax-efficiently.
Key takeaways
- Brandon Clark says active ETFs have grown quickly after 2020 regulatory changes expanded what could come to market.
- Clark says there is still substantial white space because about 5,000 mutual funds with about $14 trillion in assets lack ETF counterparts.
- Clark says advisors value ETFs for intraday trading and pricing, which improves portfolio operations and rebalancing.
- Clark says ETFs can improve after-tax outcomes by 100 to 150 basis points versus mutual funds.
- Clark says due diligence should still cover track record and alpha, but also whether a manager knows how to maximize ETF tax efficiency.
Notable quotes
“prior to 2020, there weren't a lot of active ETFs available, but some regulatory legislation that was passed in in 2020 really opened up the door”
“Active ETFs are just a little over a trillion, about 1.6. You know, that we still have a long way to go”
“there's still about 5,000 mutual funds um with about $14 trillion, and a lot of those mutual funds do not have ETF counterparts”
“ETFs are kind of like 2.0 technology if you want to think about it as like relative to mutual funds. You know, they trade intraday, they price intraday”
“there is added value on an after-tax basis to clients um and I had recently seen a study that said, you know, it was 95% of of clients asked advisors about after-tax returns”
How the episode opens
Hi everyone, welcome to this wealth management fast chat. I'm David Armstrong. Today I'm speaking with Brandon Clark, the senior vice president and director of the ETF business at Global Asset Management, Federated Hermes. Brandon, thanks very much for joining us.
Thanks for having me, David. — So today we're talking about ETF growth, particularly active ETFs. We know these things have been around for a few years now, but they seem to be getting a lot of traction now. What's driving the growth of an active ETF?
Yeah, I think one of the main drivers around active ETFs is as you mentioned, we're seeing a lot of flows and a lot of assets just go kind of collectively in ETF, but active ETFs have really started to grow over the last few years. I think one of the main drivers of that is just you know, prior to 2020, there weren't a lot of active ETFs available, but some regulatory legislation that was passed in in 2020 really opened up the door for active ETFs to come to market in a more fullsome way. And what we're seeing now is we're seeing more product availability and which is what that means is we just see a lot more opportunities for investors to use ETFs.
When I think about the you know, just kind of assets out there, there's there's about 14 trillion in ETF assets. Active ETFs are just a little over a trillion, about 1.6. You know, that we still have a long way to go in terms of how much how much opportunity there is for active ETFs, but we are seeing a lot more advisors use active ETFs.
We're also seeing a lot more retail investors use ETFs. I think one of the things coming out of COVID was we saw a lot more retail investors come into into the market and actually do a lot more I'll call DIY investing.
From the episode’s captions: roughly the first two minutes, lightly cleaned. Keep watching on YouTube →
Topics
- active etfs growth
- etf adoption by advisors
- intraday trading and pricing
- tax efficiency
- regulatory changes and product availability
Companies and tickers mentioned
- FHI
- Federated Hermes
Watch the episode
Watch “Same Portfolio. Different Results. It's About Location.” on YouTube
Summary, takeaways and quote selection by Octagon. Quotes are short excerpts; the full conversation is in the episode.
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