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FLASHBACK FRIDAY: Stock Pickers Pick ETFs

Flashback Friday sponsored by Instinet

Traders Magazine Online News, July 20, 2018

John D'Antona Jr.

Exchange-traded funds remain one of the darlings of the investment world.

Usage by investors – both institutional and retail - remains high as ETFs seemingly navigate the balance between risk and reward as well as liquidity and yield. And as the sector continues to gain acceptance and more momentum, issuance continues with new underlying collateral – such as cannabis, cryptocurrency and so-called “green” initiatives.

According to the Investment Company Institute, estimated value of all ETF shares issued exceeded that of shares redeemed by $5.37 billion for the eight-day period ended July 11, 2018. People love exchange traded funds and product.

And it appears regulators do too. The Securities and Exchange Commission recently made an announcement that might have just juiced the ETF space now.

How?

The nation’s foremost regulator just voted 5-0 in committee to ease rules for companies to sell low-risk ETFs without seeking its approval. The SEC hopes the move will lower costs of entry into the space and promote innovation.

While not set in stone, the proposed change still must pass muster with the industry via a comment period. Many ETF issuers operate under myriad different standards to bring issues to market and given the complexity involved, some argue that the current system favors some over others.

In its monthly commentary, ITG analysts wrote that changing the rule will indeed put smaller ETF providers on the same footing as larger ones and will likely lower the cost of creating new products.

Currently, ETF issuers must get SEC permission or “exemptive relief,” before selling funds.

And its not just U.S. regulators and investor that love ETFs – but across the Pond investors are also buying the sector. May was the second strongest month for Tradeweb’s European-listed exchange-traded fund platform since its launch in 2012 as fund flows showed a heavy turnover and rotation during the month.

Tradeweb Markets, which provides electronic trading for fixed income, derivatives and ETFs, said in an email that May was the second strongest month on record for its European-listed ETF marketplace since it launched in October 2012, with total traded volume of €22.4bn ($26bn).

Adriano Pace, head of equities (Europe) at Tradeweb, said in a statement: “As the month drew to a close, platform activity accelerated amid heightened market volatility driven by political developments in Italy and Spain. More than €6bn was executed in the last three days of May alone, which translates into 27% of the entire monthly flow.”

Detlef Glow, head of EMEA research at Thomson Reuters Lipper, said in his latest Monday Morning Memo that net inflows last month led to  assets under management in European ETFs increasing to €663.7bn. Glow said the increase of €11.8bn from April was driven by both the performance of the underlying markets and net sales of €1.5bn. Equities had the strongest inflows in May last month, reversing the outflows in the previous month.

Glow added: “This flow pattern drove the overall net flows up to €21.9bn for the year 2018 so far.”

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