“Previously, I had talked to advisors who had gone far down the route of planning an ETF launch and didn’t fully appreciate the requirements that you’re held to as an advisor and the costs associated with that,” says Krisko, whose firm is the sub-advisor to 35 ETFs, 5 UCITs and 97 separately managed accounts with total assets of roughly $4.3 billion.
“I think people are more educated now, and the number of liquidations has made some firms pause and carefully think about their ETF aspirations,” she says.
There has been no shortage of ETFs with narrow investment objectives that didn't gain traction with investors. Indeed, ETF closures have steadily risen from 79 in 2014 to 155 in 2018, according to FactSet. There have been 84 closures of ETFs and ETNs so far this year.
“I think the recent spate of liquidations were a healthy maturation of the industry,” Krisko says, adding that she expects the ETF business to regain steam in coming months even if it’s not at the breakneck pace of recent years.
“From Vident’s perspective we have a healthy pipeline of product launches planned by our clients for the fourth quarter and into 2020,” she says. “And given the maturity and saturation of strategies on the equity side, and where we are in the market cycle, we’re seeing people turning to fixed income and/or yield generation strategies.”
Krisko believes the real growth opportunity will come when retirement plans more readily adopt ETFs.
Meanwhile, Rosenbluth from CFRA also expects 2020 to be a strong year for ETF launches.
“By the end of this year we should have the first of the actively managed, non-transparent equity ETFs based on the Precidian structure that got approved earlier this year,” he says. “And I think we’ll see a wave of products tied to the ETF Rule.”
Rosenbluth believes the ETF Rule should goose the rollout of traditional, fully transparent (i.e., daily portfolio disclosure) actively managed ETFs. “It has been harder to get approval for a transparent actively managed ETF than a traditional index-based one,” he says. “I think with clear, consistent rules from the SEC we’ll see more of these types of products.”