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2022 ETF Outlook: Expect Hundreds of Launches, Mostly Active Funds

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What You Need to Know

  • 2022 is expected to be another record-setting year for launches and fund flows.
  • Actively managed ETF launches are expected to overpower passive ETF debuts.
  • RIAs are seen introducing their own ETFs, based on their proprietary investment models.

2022 is expected to be another boffo year for U.S. ETFs, with even more launches and greater fund flows than 2021, a record-setting year.

Four hundred forty-five new ETFs launched in 2021 as of Dec. 20 compared with 309 in 2020, and ETFs collected about $800 million in net new fund flows — more than two and a half times the flow into mutual funds, according to Morningstar data.

About 60% of the ETF launches were actively managed in the conventional sense, but if one includes all factor and thematic ETFs, the percentage jumps to about 87%, said Ben Johnson, director of global exchange-traded fund research at Morningstar.

Hundreds More ETFs Will Launch

He and other fund analysts expect hundreds more ETFs will launch in 2022 and the majority will be active. “There is no white space left in traditionally defined passive products,” said Johnson. “We don’t need another total return international developed market cap-weighted index ETF or another S&P 500 index ETF.”

What investors need instead are ETFs that suit today’s uncertain markets, according to Michael Loukas, CEO of TrueMark Investments. “If efficient markets lend themselves to passive strategies then inefficient, uncertain markets lend themselves to active ETFs.”

“We think 2022 will be an even more successful year for active managed ETF asset gathering than 2021 has been,” wrote Todd Rosenbluth, head of ETF and Mutual Fund Research at CFRA.

Some of the new active ETFs could be ETF conversions, which happened for the first time in 2021 when Atkinson Asset Management converted two mutual funds to ETFs. Others will be  clones or close cousins of existing mutual funds or entirely new products.

“To launch and not to convert will continue to be the preference of many asset managers,” Johnson said.

In 2022, Capital Group, which has over $2 trillion in assets, will be doing just that, introducing  ETFs for the first time, as will Neuberger Berman, both joining legacy firms like Putnam Investments and Dimensional Fund Advisors, which entered the ETF universe within the last year or two.

The Security and Exchange Commission’s SEC ETF Rule 6c-11, adopted in mid-2019, helped pave the way for ETF launches from established mutual fund companies by eliminating the requirement that asset managers file for exemptive relief every time they launch a new ETF and allowing all transparent ETFs to make use of custom baskets.

RIAs, Too, Will Be Launching ETFs

But new ETFs are expected not only from traditional asset managers like Capital Group, but also from RIAs who will roll up their investment models into ETFs, said Dave Nadig, chief investment officer and director of research at ETF Trends.

Fisher Investments pioneered the approach, which has also been embraced by Meb Faber’s Cambria Investments, Main Management and Cumberland Advisors and could soon include more RIA firms, Nadig said.

RIAs can roll up their model portfolios or other investments representing a specific area of expertise into an ETF to create operational efficiency for themselves and potentially new revenue streams,” Nadig said. “There’s always the chance you can catch lightning in a bottle.”

He expects 400 to 500 new ETF launches next year.

Ongoing ETF Trends

Other expectations for the ETF universe in 2022 involve the continuation of ongoing trends:

  • More launches of semi-transparent ETFs, which don’t disclose their holdings on a daily basis, and thus allow portfolio managers to avoid any front-running of their positions
  • More introductions of ESG-focused ETFs. Nicholas Elward, Head of Institutional Product and ETFs at Natixis Investments Managers — US Distribution, expects those ETFs “will have their biggest sales year ever.”
  • Continued growth of ETF model portfolios

“What’s in store is more  of the same,” Johnson said. “Most investors are perfectly happy to park their cash in ETFs.”

“I forecast ETFs doing nothing more but exploding in interest,” said Natixis’ Elward, noting the appeal of their tax efficiency and typically less expensive cost structure than mutual funds.

“Investors’ growing comfort with ETFs in 2021 positions the industry for continued success in  2022,” wrote Rosenbluth in his 2022 ETF outlook. “However, with more than 2,000 products available and many competing with one another for investor attention, we expect asset managers to continue to focus on investor education to highlight what makes their ETF unique.”

Don’t Expect a Spot Bitcoin ETF to Come to Market

What ETF analysts don’t expect to see in 2022 is the introduction of a spot Bitcoin ETF.

“We will see some clarification on crypto regulation, but not a Bitcoin ETF,” said Nadig, who expects “some sort of regulatory guidance or rule-making around stablecoins that could lead to a regulated product like a blockchain ETF owning Treasurys as well as possibly more Bitcoin futures ETFs.

Several Bitcoin futures ETFs debuted in the fourth quarter, but all have declined in price since their launches.