Key takeaways
- There were a record number of exchange-traded funds (ETFs) created in the US during 2023.
- An increase in active ETFs, the addition of an ETF share class to existing mutual funds, and a shift toward more structured products were hallmarks of the record year for this market.
- An ETF data analyst said he expects cryptocurrency and SEC regulation to be top of mind for ETF investors in 2024.
The record number of exchange-traded funds (ETFs) created in 2023 indicates that pooled investment securities have attracted the attention of a wide range of investors.
Aniket Ullal, director of ETF data and analytics at CFRA, told Investopedia that notable trends in the ETF market over the past year include a rise in active ETFs, adding ETF classes to existing mutual funds to gain tax benefits and a shift towards structured products. .
The analyst also shared his expectations for next year, led by cryptocurrency ETFs and probables Securities and Exchange Commission (SEC) regulatory action.
2023 launches break ETF records
ETF creations hit an all-time high in 2023.
As of Dec. 15, 506 U.S.-domiciled ETFs had been created, surpassing the previous high of 475 set for all of 2021, according to data provided to Investopedia by Morningstar Direct.
Trends in 2023: Active ETFs, mutual funds and structured funds
Beyond the rebound in ETF creation in 2023, Ullal noted a rise in active ETFs, mutual funds that offer an ETF share class, and structured products.
A Active ETF It is one in which a fund manager determines the allocation of the underlying portfolio, rather than using a passive investment strategy, which tracks the performance of an index.
Nearly two-thirds (65.3%) of listings in 2023 were considered active or not linked to a specific index, compared to an average of less than a quarter (22.8%) that had that characteristic during the reporting period. 2000 to 2022, according to CFRA data.
Another notable trend in 2023 was some large fund managers asking to add a class of ETFs to their existing mutual funds to help reduce clients' tax bills, as this option became more widely available. In May 2023, a Cutting-edge patent expired that had been downloaded Capital gains taxes on their ETFs by structuring them as a share class distinct from mutual funds, so that, at that point, other brokerage firms could begin employing the strategy as well.
Vanguard's ETF competitors, such as Fidelity and Dimensional Fund Advisors, have begun filing applications with the SEC to issue an ETF share class for their existing mutual funds.
Ullal also highlighted a shift towards a greater number of structured products, such as Options-Based ETFs and defined outcome ETFs, during the last year. For example, Goldman Sachs launched two ETFs, the S&P 500 Core Premium Income ETF (GPIX) and the Nasdaq-100 Core Premium Income ETF (GPIQ).
These ETFs use the Standard & Poor's 500 and Nasdaq 100 indices as points of reference, tracking companies in indices to provide "monthly earnings distributions at a relatively stable rate," Goldman said. The firm said these types of structured products are especially attractive to investors experiencing periods of market volatility.
What to watch in 2024: SEC and crypto ETFs
In the new year, the SEC's actions, specifically those related to the Vanguard model ETF share class for existing mutual funds and detect bitcoin ETFโcould be hot topics for ETF investors.
After Vanguard's patent expired in early 2023, some competing asset managers filed with the SEC to launch their own ETF class shares for their mutual funds. But there seemed to be no hurry on the part of the ETF Giants to implement the hybrid mutual fund and ETF model, which could be attributed to looming concerns about possible regulation because the process affects federal tax revenue.
It is not yet clear whether the SEC will approve applications submitted by other fund managers, including Fidelity and Dimensional Fund Advisors, Ullal said.
Another trend in the field that Ullal expects in 2024 is cryptocurrency-focused ETFs.
From an asset size perspective, cryptocurrencies are small, but when considering what investors are interested in, Ullal said cryptocurrencies are โsignificantโ for the new year because there is the โpossibility of a bitcoin ETF launching.โ in cash" in 2024.
In August 2023, a federal government Court of Appeals ruled in favor of the cryptoasset management company Grayscalefinding that the SEC did not provide sufficient reasoning to block Grayscale's request to convert its Grayscale Bitcoin Trust (GBTC) in an ETF.
He The SEC had rejected Grayscale applied for ETF conversion, citing security concerns about fraudulent and manipulative market activities.
