ETFs Are Hotter Than Ever, Yet the Biz is Still Highly Concentrated
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Thursday, July 20, 2017

ETFs Are Hotter Than Ever, Yet the Biz is Still Highly Concentrated

ETF inflows this year are triple that of traditional mutual funds, but those ETF inflows remain concentrated in a handful of big, cheap, and largely old ETFs.

$250.2 billion net flowed into U.S.-domiciled ETFs in the first half of 2017, according to a report from Elisabeth Kashner, ETF research and ETF analytics director at FactSet. 50.5 percent of those inflows, Kashner points out, went into just 20 ETFs. Those big ETF winners have a median expense ratio of seven basis points, median AUM of $33.6 billion, and were all launched no later than 2012.

MarketWatch picked up on FactSet's findings.

FactSet's report offers a host of other juicy tidbits. The average expense ratio of a winning ETF (one that gained market share in the first half of the year) was 19 bps, while the average expense ratio for a losing ETF (one that lost market share) was 27 bps.

"Yes, you read that correctly; in 2017, an expensive ETF is one that costs more than 0.20% per year," Kashner writes. "Cost matters, even among dirt-cheap ETFs tracking cap-weighted indexes. These days, every basis point counts, as investors keep pinching pennies."

As for active ETFs, Kashner notes that "active management is gaining market share among U.S.-domiciled ETFs, especially in equities."

"As traditional asset managers continue to look for a point of entry to the ETF landscape, actively managed ETFs may be their best bet," Kashner writes. "In the context of rising interest in ETFs and dwindling interest in older product types, a brutal fee war, and a clear investor preference for broad-based cap-weighted funds over complex or idiosyncratic ones, there aren't any other viable options."

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