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Approximately 2,000 asset managers and investment advisors have gathered at the Exchange ETF conference in Las Vegas, signaling a significant event in the finance industry.
On Saturday evening, attendees were treated to a performance by Dead & Co. at the Sphere, which featured a mesmerizing light show, complementing the band’s renowned musical talent.
Beyond the entertainment, this conference serves as a crucial meeting point for professionals from major firms like BlackRock and Vanguard, alongside investment advisors focused on enhancing their ETF purchase strategies. The discussions will center on three primary themes: 1) navigating the recent market upheavals, 2) effective investment strategies utilizing ETFs, and 3) strategies for optimizing the growth and management of their businesses.
The third focus area, known as “practice management,” is taking on an increasingly prominent role at such conferences, comprising around 35% of the agenda. This emphasis reflects the rapid expansion of the wealth management sector, which is increasingly catering to a limited number of affluent clients who have benefited from robust growth in both real estate and stock markets.
ETF Flows in 2025: Fixed Income Gaining Traction
It is a common adage that “flows follow price,” indicating that many investors tend to follow market trends by purchasing popular assets.
Year-to-date ETF flows have exhibited volatility. The overarching trend shows that there are consistent inflows into equities, yet fixed income, particularly ultrashort funds, has also witnessed significant interest. Surprisingly, yields for precious metal funds have remained subdued despite recent peaks in gold prices.
ETF Inflows Year-to-Date
Equity: $135 billion
Fixed Income: $92 billion
Fixed Income Ultrashort: $40 billion
Precious Metals: $8 billion
Source: ETF Action
In the equity segment, nearly half of the inflows are directed towards passive index funds, consistent with a long-standing trend. While there have been modest inflows into large cap growth funds, such as the Vanguard Growth Index ETF (VUG), a cautionary note has emerged with outflows in the Invesco QQQ Trust over the past month, indicating potential jitters among tech-focused investors.
Notably, there has been a substantial uptick in fixed income inflows, rivaling those of equities. This shift can be understood through two lenses: the recent market turbulence has led many investors to seek the stability of bonds, and a demographic trend reveals an aging population that is increasingly prioritizing reliability in income streams.
Ben Johnson, head of client solutions at Morningstar, highlighted the demographic transition as a pivotal factor driving the shift towards bond funds, stating that investors nearing retirement are de-risking their portfolios.
The conference will explore the latest moves into ultrashort Treasuries, with significant interest in understanding their implications amid fluctuating market conditions. Todd Rosenbluth, head of research at TMX Vettafi, noted that advisors are particularly keen to unravel the complexities of the fixed income market and strategize client portfolios accordingly.
Private Equity and Private Credit in ETFs
The integration of private credit and private equity into ETF structures has proven to be complex. The recent introduction of the SPDR SSGA Apollo IG Public & Private Credit ETF (PRIV) encountered only mediocre demand, though there remains a strong interest in this area.
Rosenbluth mentioned ongoing industry discussions regarding the SSGA offering and potential forthcoming products, while BondBloxx’s Private Credit CLO ETF (PCMM) is set to be highlighted during the conference sessions.
The consensus is clear: investors are eager for access to private equity and credit, but delivering these products within an ETF framework remains challenging. James Thomas from Ropes & Gray remarked on the significant liquidity mismatches that arise when attempting to fit illiquid asset classes into an ETF structure.
Johnson emphasized that catering to private assets can require diluting the quality investors seek, a dilemma not faced by existing non-ETF products offered by firms like Blackstone and Apollo.
In conclusion, the future remains uncertain regarding whether ETFs will dominate the trading of private capital products.
Actively Managed ETFs
Actively managed ETFs currently comprise less than 10% of the nearly $11 trillion U.S. ETF market, yet they have attracted a notable share of new investment, accounting for nearly 30% of the total capital inflow this year.
Firms such as Cohen and Steers, TCW, and T. Rowe Price will showcase their active management approaches. A noteworthy trend is the growing popularity of options income and buffer products.
Options income strategies, such as those implemented by the JP Morgan Equity Premium Income ETF (JEPI), involve selling covered calls on the S&P 500, providing consistent monthly income while capping potential gains. Similarly, buffered products like the FT Vest Laddered Buffer ETF (BUFR) offer exposure to the S&P 500 with a built-in buffer against losses, appealing to investors seeking to mitigate their downside while remaining invested.
Leveraged/Inverse and Single-Stock Bets on the Rise
A niche yet significant segment of the market has emerged around leveraging and inverse ETFs, which have gained traction in recent years, growing from about 2% to approximately 7% of total ETF assets under management.
This subset of investors, initially focused on leveraged products linked to indices like the S&P 500 and Nasdaq-100, is now shifting towards single-stock ETFs targeting high-volatility technology stocks like Tesla, Coinbase Global, Nvidia, and Apple.
Leveraged/Inverse and Single-Stock Bets
(YTD Flows)
Single Stock Leverage/Inverse: $6.5 billion
Indexed Leverage/Inverse: $607 million
Source: ETF Action
Most investors holding these ETFs typically retain them for short durations, given the inherent volatility of these products, which can lead to adverse outcomes in downtrending markets.
Single Stock ETFs Performance in March
Direxion Daily TSLA Bull 2x (TSLL): -33%
GraniteShares 2x Long COIN Daily (CONL): -28%
Direxion Daily AAPL Bull 2x Shares (AAPU): -20%
GraniteShares 1.25x Long Tesla Daily ETF (TSL): -20%
ETF Share Classes of Mutual Funds
Pioneered by Vanguard, the structure enabling ETFs to serve as share classes for mutual funds enhances tax efficiency by allowing better management of capital gains.
With Vanguard’s patent expired, around 50 firms are currently seeking SEC approval to provide ETF share classes for their mutual funds.
Joe Mannon from Vedder Price predicted rapid developments in this area, expressing confidence in swift SEC approval. Ben Johnson from Morningstar concurred, suggesting that the addition of ETF shares to existing mutual funds holds the potential to benefit all shareholders and mirrors successful models seen in international markets, such as Canada.
Source
www.cnbc.com