More than eight in 10 sponsors of exchange-traded funds are focusing their product development efforts on passive ETFs that are unique to the market, according to new research.
Cerulli Associates discloses this finding in “The Cerulli Edge: U.S. Monthly Product Trends Edition.” The report examines passive investing strategies, including developments respecting mutual funds, ETFs, money markets market funds and new products. Of the ETF sponsors polled by Cerulli, 86 percent say they’re developing passive ETFs that are unique or stand apart from ETF competitors.
Smaller percentages of ETF sponsors polled by Cerulli say they are:
- Developing active fixed-income ETFs (57 percent);
- Building funds of ETFs or packaged solutions (43 percent);
- Developing active equity ETFs (36 percent);
- Developing new, low-fee ETFs to, for example, track broad equity indices (7 percent);
- Seeking to buy an established ETF product line (0 percent).
“As passive investing becomes increasingly established across the investment industry, it is likely that passive products users will exhibit greater comfort with indexing and be more open to these products,” the report states. “Given the underlying indices for alternative-weighted products do not have the name recognition or track record of the traditional MSCI, S&P or Russell indices, education on their benefits (e.g., reduced risk in volatile market conditions) is an additional step to further adoption.”
The report adds that 81 percent of investors this year need alternative investment vehicles to optimize the risk-adjusted performance of their portfolios. This compares with 89 percent of investors in 2012 and 73 percent in 2011 who were oriented to alternatives for the same reason.
Other drivers of investor interest in alternatives include:
- Expectations regarding future capital markets (77 percent);
- Demand from institutional clients (76 percent);
- Demand from financial advisors (61 percent);
- The need to differentiate in a competitive marketplace (54 percent);
- Demand from distributors/platform providers (51 percent);
- Revenue potential (51 percent); and
- Demand from individual investors (31 percent).