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ETFs Could Open Door to Subadvisory Opportunities: Cerulli

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Exchange-traded funds, says new Cerulli research, could become a means for managers to provide active management and lead to more mandates for subadvisors.

So says the December 2018 issue of The Cerulli Edge—U.S. Asset and Wealth Management Edition, which points out that approximately 77% of total ETF assets are passively managed, market-cap-weighted index products — but most new ETF issuers seek leverage of their own, or their subadvisor’s, active management capabilities to provide active or strategic beta ETFs when entering the ETF market.

In fact, Cerulli data indicate that the more esoteric the strategy, the more likely managers are to engage a subadvisor; in addition, “unaffiliated multi-subadvisor arrangements are likely to remain an area of high potential opportunity within mutual fund subadvisory,” the report says, adding, “There has been a shift in the share of assets toward multi-subadvisor arrangements and away from unaffiliated single-subadvisor.”

“During the past five years, the perfect storm of new ETF issuer entrants, investor preferences and strong capital market conditions allowed assets within the ETF wrapper to explode,” Matt Merritt, associate analyst at Cerulli, writes in the report, which says that total ETF assets are currently at $3.7 trillion, a growth rate of 141% between Q3 2013 and Q3 2018.

Merritt adds that “managers are clearly taking notice of this growth, with 89 new firms entering the market over that same time period.”

And it’s not just new firms that are proliferating; according to the report, just in the first half of 2018, “more than 100 new ETFs entered the market, with 68% of them being either strategic beta or actively managed strategies.”

When it comes to the retail side, professional buyers haven’t gone all in on strategic beta and actively managed ETFs. Broker-dealers will have to weigh in in greater numbers for the active/strategic beta space to really thrive.


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