“I don’t buy either one,” Fuhr said. But whatever the definition is, she acknowledges that smart beta has become an asset-gathering magnet.
“There is $559 billion in smart beta ETF products,” Fuhr said. “The impressive number isn’t the size of the assets, but the fact that it’s growing at a compounded annual growth rate of more than 31 percent during the past five years. And when we dig into the data, we see that a third of all smart beta ETF assets today are in high-dividend products. To me, that’s not smart beta; for many people that’s just wanting income. And about 70 percent of assets in smart beta are in products providing access to the U.S. market no matter where they’re domiciled.”
Fuhr also addressed the status of actively managed ETFs, a segment that commands a tiny proportion of overall ETF assets but which, some observers believe, could play a bigger role if and when the Securities and Exchange Commission approves non-transparent, active ETF structures currently under review.
“Due to the requirement in the U.S. to provide daily transparency, 72 percent of the assets in active funds are in fixed income-focused products because most active equity managers who feel they have a secret sauce don’t want daily transparency on what they hold,” she said. “So it will be interesting to see if the SEC allows non-transparent, active [funds].”
The current crop of non-transparent, actively managed exchange-traded managed funds are based on a platform developed and licensed by NextShares LLC, a division of Eaton Vance, which offers a non-transparent structure that employs net asset value (NAV)-based trading where fund shares are purchased and sold on an exchange throughout the trading day at market-determined spreads to the fund’s ending NAV on that day.
Fuhr closed by saying that ETFGI research has found that once people try ETFs, the number of funds and assets that they hold, along with the time horizon they’re held, grow significantly. She said that half of institutions typically hold their ETFs for more than two years, and she noted that insurance companies are using ETFs more due to changing regulations.
“My belief is the ETF industry has a lot of opportunity for growth,” Fuhr said.
At least for now, few people would argue that point.