By Michael Prendergast, SVP, Senior ETF Product Specialist, Ultimus Fund Solutions
The 2023 ExchangeETF Conference was an important gathering for the ETF industry and ETF-centric advisers in what may be a pivotal year that could usher in more growth and innovation. With over 3,000 ETFs in this now crowded market, and 2023 set for a possible record year for launches, sorting through the ETF universe and taking advantage of key trends and enhanced business innovation is critical to success. In addition to our active participation in the conference, we wanted to write a review and share our thoughts on this year’s event to give our partners and clients a deeper sense of the trends within the ETF marketplace.
Educational Session on the ETF Ecosystem
During a pre-conference session, ETF Infrastructure: Mastering the ETF Eco-System panel – geared to new entrants to the ETF marketplace, as a panelist, I explained some of the practical nuts and bolts of creating and/or managing an ETF in the real world.
One of the key decisions is whether to start your trust/fund from the ground up or to use a series trust that has been established by a white label administration issuer like Ultimus. Starting an ETF on your own, which can seem daunting at first, involves many moving parts, including appointing a board, hiring your own service providers and establishing governance and oversight requirements. Most managers do not have the expertise or time to dedicate to that process. Therefore, an optimal solution may be selecting a series trust which provides a turnkey solution including an established experienced board and other pre-established service providers such as an auditor, fund counsel and custodian.
Using a series trust solution can also help to bring a first product to market more quickly in as little as four to five months versus building the entire operation from the ground up which generally takes six to nine months.
Fund administration service providers can also be trusted partners and valuable sources of information regarding the ETF ecosystem and can provide guidance on trust and product structures. In addition, look for a service provider like Ultimus that has built an extensive technology infrastructure as well as a client-centric Relationship Management and Onboarding Team to support a fund launch process. Our technology infrastructure is agile and allows for flexibility to meet rapidly changing business requirements.
Impactful Keynote Highlights
The opening keynote discussed how ExchangeETF brings together all components of the ETF ecosystem including administrators, auditors, law firms, market makers, exchanges, asset managers, investors and distribution partners to gather in one place to exchange ideas, interact and cross-pollinate to move the industry forward. The keynote also recommended participants focus on the collaboration opportunities, not necessarily on just the sessions. We wholeheartedly agreed with that suggestion as we found the event was a great place to have a myriad of beneficial meetings with professionals from around the country within a two-day period.
Prior to gathering in Florida, the ETF Industry lost a legend: Kathleen Moriarty, aka “The SPDR Woman,” who was an innovator in the industry and a selfless teacher, and gave freely of her time to mentor many. During the conference, the Women in ETFs breakfast started the day off with a moving video tribute followed by a panel discussion that spoke about mentoring opportunities and women’s leadership programs, and shared advice on professionally maneuvering through the industry with lessons learned. That session was followed up with The Women in ETFs Tribute in the general session to ETF Pioneer Kathleen Moriarty to properly celebrate her life and accomplishments in the industry.
Other Key Conference Takeaways
Overall, the conference sessions were insightful. Here are some additional key discussions we’d like to share from the 2023 ExchangeETF Conference:
2023 Market Forecasts and Response: Many discussions revealed a cautious tone and feeling that the investment markets in 2023 will take a neutral sideways direction but with continuing pockets of volatility throughout the year. This led to extensive talk about the need to explore the possibilities to protect and capitalize on that. Discussions ranged from investment strategies that have futures and other volatility dampening tools to talking about the various sectors that may become popular this year.
JP Morgan’s Chief Global Strategist Dr. David Kelly offered a 2023 outlook at how inflation and geopolitical events are going to be impacting the economy, the markets, and invested portfolios going forward this year. Ian Bremmer, author, political scientist and founder of Eurasia Group presented on Geopolitical Recession which outlined the most critical risks facing the global economy and investor portfolios including the likelihood of a rogue Russia, the global energy environment, inflation shockwaves and the evolving situation in China.
The overall tone and direction of conversations at this year’s conference was decidedly different from last year with not as robust discussions around crypto or the next double-digit product. It was decidedly more “back to the basics” with most concerned with navigating 2023 for steady returns and stability, and managing volatility within portfolios. The focus this year was gaining alpha and stability in portfolios.
As to the health and growth of the industry – even through a difficult investment climate last year – ETFs had an impressive year in 2022 with over $600 billion of positive inflows – the second largest inflows on record after 2021’s $900 billion record breaking year. The buzz at the conference resonated with predictions of another year with $600 billion to $900 billion in positive flows but some predict we may even hit $1 trillion in 2023 as advisers and asset managers are increasingly turning to ETFs as a preferred investment vehicle.
Our take on concerns for a challenging market ahead in 2023 is that, despite these concerns, Ultimus continues to see significant growth in ETFs. In 2022 Ultimus saw ETF inflows increase by 40% and net new funds increase by 20%. Based on our pipeline and interest in ETFs, we expect our growth in assets under administration to continue in 2023. We are also seeing a lot of clients coming out with more complex products to gain additional alpha and address ongoing volatility in a sideways market. This includes managed futures type products, strategies with derivatives and retail alternatives. We are well positioned to help our clients with the technology and innovative solutions needed to support more complex products coming into the ETF market.
The SEC is scrutinizing: There are a number of regulatory themes and proposed rule changes at play for registered products that the SEC is looking at, which are directly impacting ETFs such as reporting requirements for Index providers and ESG funds, and the liquidity rule. Many expressed concern and spoke of how the SEC is becoming more focused on ETFs as they will be an increased focus in upcoming SEC exams in 2023 especially mutual fund to ETF conversions.
From our perspective, the concerns about the increasing SEC regulatory issues are just a reinforcement of our stance that fund administrators need to be fully prepared to help clients through the registration process, help them figure out the ongoing and changing regulatory issues at play and keep clients on the right regulatory track right out of the gate and throughout the ETF lifecycle. Our client servicing model stands ready to help RIAs and asset managers navigate the regulatory landscape for existing products, as well as for products they are thinking of launching.
Networking Opportunities: The exhibit hall provided all attendees with a great opportunity to network and learn about innovative products and solutions in the marketplace. Foot traffic was steady in the hall with a lot of conference participants seeking a better understanding of product ideas/structures and distribution trends.
For us, we seized the opportunity to network with our partners in the ETF ecosystem such as market makers and key industry players. We utilized the time to learn more about their business updates, trends they are sensing, types of products experiencing success and products that give them concerns.
In the end, this conference provided Ultimus and other attendees with a deeper perspective and understanding of where the ETF industry and advisers are headed in the coming year. With those learnings in hand, we are able to properly align our robust services and technology capabilities to meet our client’s specific business needs.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
