[Growing supply and demand for ETFs are driving the ETF industry to a stone’s throw of the $1 trillion net inflows mark. Driving this momentum are investors and advisors heightened comfort levels in strategically and tactically employing ETFs for portfolios. Recent changes to ETF regulations have also made it easier for asset managers to launch new ETF products that offer an ever-widening variety and range of new investment opportunities.
Through mid-December 2021, CFRA reported that investors poured $904 billion into U.S.-listed ETFs, eclipsing the 2020 record for ETF flows of $504 billion. Asset managers launched a record-setting 439 new products - 30% more than the number of products currently trading that came to market in 2020 and more than the combined number of launches in 2018 (213) and 2019 (206).
To better understand the mindset and mechanics behind the innovation happening in the ETF and Index marketplace, we reached out to Institute member Gabriel Hammond, CEO of Emles Advisors – an asset management firm that offers a unique suite of strategic and thematic ETFs designed to address the challenges of today’s markets. Emles just recently won two awards at Fund Intelligence’s 2021 Mutual Fund Industry and ETF Awards - Index Provider of the Year and Newcomer Fixed Income ETF of the Year.]
Bill Hortz: What was your motivation for launching Emles Advisors? What investment challenges are you focused on?
Gabriel Hammond: Emles is really a large step in diversification for us. Coming through the energy infrastructure landscape having founded both Alerian and SteelPath, we were looking to invest our own funds in a wider diversification of asset classes and interesting niches. We were surprised to realize it was much harder to find products like this than we thought it should be. So, we embarked on a journey to create a more diversified, accessible investment platform for asset managers, institutions, and individuals.
In launching Emles, we were looking to provide a solution to a challenge we found ourselves with: How can we best put our capital to work? We were faced with the same challenges that face other investors – searching for an acceptable rate of risk-adjusted return in a 0% interest rate environment. We wanted to challenge ourselves, to uncover asset classes that were historically either under-utilized, under-represented, or both. And with that mindset, we aim to seek out investment strategies that will ultimately offer more choices to investors to express their financial convictions.
Hortz: Why did you decide to predominantly work within the ETF and index landscape and use the ETF vehicle structure?
Hammond: ETFs and the index environment were really an evolution for me on the path to growing the Alerian and SteelPath businesses and consisted of a number of groundbreaking leaps beginning with launching the first MLP index at Alerian in 2006. With this, it was clear to see the potential that indexing had at that time and how it would lend itself to us launching the first MLP ETF just four years later in 2010.
I was just so excited by the ability to scale the index capabilities and how index construction was really a business within a business. If you combine the cold, clean data from the index side and the liquidity, tax efficiency, and transparency of the ETF structure, it is not a surprise to me that the ETF investment choice available to investors has grown exponentially over the last 10-15 years. It has also been helped by the recent change to the ETF rule 6c-11 which really leveled the playing field between more established issuers and newer entrants like us.
Hortz: How do you go about identifying and developing unique and differentiated asset classes and investment strategies for your ETFs?
Hammond: Inevitably it comes down to one key question: is this something I would want to invest in? But to get to that point, we have brainstorming sessions to assess current themes/megatrends and to gauge areas of potential client investment interest going forward. We also collaborate with our advisor partners to assess what clients are asking for, so it is really a two-way approach to what can we create.
That is important because there are lots of ETF products out there, but what we want to do is enrich the investment process for investors by providing them with access to something they really want and ultimately need. And with all our products, we are committed financially too. We seed our ETFs with our own funds and so we are invested just like our external investors. We are committed to doing the work to uncover the strategies that will make a meaningful difference to investors and provide access to themes, such as our global luxury goods ETF, which we realized did not exist in any form, until we launched it in November 2020.
Hortz: Can you give us a brief overview of your current investment line-up and the investment opportunities they are targeting?
Hammond: We are focused on developing differentiated investment opportunities that seek to address the current challenges and opportunities in today’s markets. Our suite of strategic and thematic ETFs seek growth, income, or diversification for investors: