ETFs Investment Fund News
The latest reports have predicted that cryptocurrencies and the regulation of the Securities and Exchange Commission (SEC) will be the main focus for ETF investors in 2024. Record numbers of ETFs launched in the United States in 2023 indicate that collective investment securities have captured the attention of a wide range of investors. Aniket Ullal, Head of Data and Analytics for ETFs at CFRA, noted the rise of active ETFs and the addition of ETF classes to existing mutual funds for tax benefits, as well as a shift towards structured products.
2023 Registrations: Active ETFs, Mutual Funds, and Structured Products
In addition to the increased launch of ETFs in 2023, Ullal observed a rise in active ETFs and mutual funds offering ETF classes and structured products. An active ETF is one in which the fund manager determines the distribution of the underlying portfolio, as opposed to using a passive investment strategy that tracks the performance of a specific index. About two-thirds of listings in 2023 were considered active, meaning they were not tied to a specific index, compared to an average of less than a quarter (22.8%) from 2000 to 2022, according to CFRA data. Ullal also noticed an increase in a significant number of large fund managers who have introduced ETF classes to their existing mutual funds to help reduce clients’ tax bills, as these options have become more widely available. Vanguard’s patent expired in May 2023, which lowered capital gains taxes on its ETFs by structuring them as a distinct class of mutual funds, which at that time allowed other brokerage firms to start employing this strategy as well. Vanguard’s competitors in the ETF space, such as Fidelity and Dimensional Fund Advisors, have started filing with the U.S. Securities and Exchange Commission (SEC) for the issuance of ETF classes for their existing mutual funds. Ullal also pointed out a shift toward a larger number of structured products, such as options-based ETFs and outcome-oriented ETFs, over the past 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 funds utilize the Standard & Poor’s 500 and Nasdaq 100 indices as benchmarks, tracking the companies listed in these indices to provide “relatively stable monthly income distributions,” according to Goldman Sachs. The firm stated that these types of structured products are particularly appealing to investors facing periods of market volatility.
What to Watch for in 2024: SEC and Crypto ETFs
In the coming year, the actions of the SEC, particularly those related to the class of ETFs based on Vanguard’s model for current mutual funds and spot Bitcoin ETFs, may be hot topics for ETF investors. Following the expiration of Vanguard’s patent earlier in 2023, some competing asset managers have submitted requests to the SEC to launch their own ETF classes for their mutual funds. However, it does not appear that major ETF players are rushing to implement the hybrid mutual-fund-ETF model, which may be attributed to concerns about potential regulation as the process impacts federal tax revenues. It remains unclear whether the SEC will approve applications submitted by other fund managers, including Fidelity and Dimensional Fund Advisors, according to Ullal. Ullal also anticipated a trend towards crypto-focused ETFs in 2024. In terms of asset size, cryptocurrencies are small, but looking at investor interest, Ullal said that cryptocurrencies are “important” for the new year as there is a “potential for the launch of a spot Bitcoin ETF.” In August 2023, a federal appellate court ruled in favor of the cryptocurrency asset manager Grayscale, finding that the SEC had not provided enough justification to deny Grayscale’s request to convert the Grayscale Bitcoin Trust (GBTC) into an ETF. The SEC had previously rejected Grayscale’s request to convert its ETF, citing security concerns regarding fraudulent and manipulative market activities.
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