Good news: There’s still a lot of money coming in, but the industry is maturing
The ETF behemoth continues to raise money and currently has more than $8 trillion in assets under management. Index/passive investing, which was the main driving force behind ETFs 30 years ago, offers the potential for smart investors, including younger investors who started investing after the pandemic, to outperform the market. They continue to bring in new supporters as they come to understand the difficulties.
The bad news is that much of the low-hanging fruit is already gone, as the industry is reaching middle age. Almost every type of index fund you can think of already exists.
For the ETF industry to grow, it will need to expand active management services and devise new ways to attract investors.
Active management strategies performed well in 2023, accounting for about a quarter of all inflows. Covered call strategies that provide recession protection, such as the JPMorgan Equity Premium Income ETF (JEPI), attracted money. But as the broader market hits new highs, it’s unclear whether investors will continue to pour money into covered call strategies, which naturally underperform in rising markets.
Fortunately, the industry has proven to be very adept at capturing the investment zeitgeist floating around. They range from the ridiculous (pot ETFs back when there was no real pot industry) to ideas that actually have staying power.
Six or seven years ago, it was thematic tech ETFs like cybersecurity and electric vehicles that attracted investors.
Big Topics in 2024: Bitcoin, AI, and Magnificent 7 Alternatives
The industry is betting that newly created Bitcoin ETFs will bring in billions of dollars in profits in 2024. Bitcoin for grandma? Let’s take a look.
Besides Bitcoin, the big topics here in Miami Beach are 1) AI and what it means for financial advisors and investors, and 2) how to get clients thinking about stock allocations beyond the Magnificent 7. is.
In particular, investment from China is lacking.
Bitcoin for grandma?Opinions are divided among financial advisors on whether to take the plunge.
10 Spot Bitcoin ETFs successfully launched. The committee will be led by three of them, Matt Hogan, chief investment officer at Bitwise, Steve Kurtz, global head of asset management at Galaxy, and David Laval, global head of ETFs at Grayscale. It plans to offer advice to financial advisers who appear to be on the fence. About how to proceed.
Rick Edelman, founder of Edelman Financial Engines, the nation’s number one RIA, and current chairman of the Council of Digital Asset Financial Professionals (DACFP), will also be in attendance.
Edelman has long been a Bitcoin bull. He recently estimated that the price of Bitcoin will reach $150,000 within two years (about three times its current price), and that independent RIAs with a combined total of $8 trillion under management will reach $150,000 within the next two to three years. He estimates that he may invest 2.5% of his assets in cryptocurrencies. This equates to him over $154 billion.
Although inflows into Bitcoin ETFs have been modest so far, some advisors see them as the first true bridge between traditional finance and the crypto community.
However, many advisors are unsure whether to recommend them. This is not only because of the large number of competing products, but also because of the legal minefield surrounding Bitcoin, especially SEC Chairman Gary Gensler’s warning that financial advisors recommending Bitcoin need to be careful. . Clarify “fit” requirements for the client.
For many, these suitability requirements, along with high volatility, continued suspicions of manipulation, and doubts about whether Bitcoin is a true asset class will be enough to turn them away.
The Bitcoin ecosystem is going out of control to convince the RIA community otherwise.
Artificial Intelligence: What can it do for the investment community?
While thematic technology investing (cybersecurity, robotics, cloud computing, electric vehicles, social media, etc.) has waxed and waned over the past decade, artificial intelligence ETFs (IRBT, ROBT, BOTZ) have gained some traction. There is no doubt that we are getting it back. The challenge is to define what an AI investment looks like and which companies will be exposed to it.
But the impact is already being felt in the financial advisory community.
Jason Pereira, senior partner and financial planner at Woodgate Financial, talks about how financial advisors are leveraging artificial intelligence. There are now great AI tools available to financial advisors. Pereira explains how he was able to generate financial podcasts using only snippets of his own voice. Simply enter your text to generate an entire podcast without actually saying a word. How can I generate text? In theory, you could go to Chat GPT and say, for example, “Write me his 500 words about the current issue in my 401(k)” to a specific audience. You can rewrite it a little for .
How do you remain relevant in a world where a million people can now create podcasts about financial advice? Many low-skilled tasks (data analysis) will quickly become commoditised, but Pereira He believes that there will soon be a huge difference between quantity and quality.
Stock allocation beyond the Magnificent Seven
Financial advisors are plagued by clients asking them to put money into the Magnificent 7. Round Hill’s new Magnificent 7 ETF (MAGS) has attracted huge amounts of money in recent months, and he currently has over $100 million in assets under management.
Since the end of last year, there have been huge inflows into technology ETFs (Apple, Microsoft, NVIDIA) and modest inflows into communications (Meta and Alphabet) and consumer discretionary (Amazon). Almost everything else is in decline, especially energy, health care, and material outflows.
Advisers are eager for advice on how to talk to clients about the concentration risks associated with only big tech investments, and how to allocate to long-term investments.
Alex Zweber, Managing Director of Investment Strategy at Parametric, and Eric Weyer, Global Head of Investments and Chief Investment Officer at T. Rowe Price, Invest in Option Overlays He is leading a panel discussion on alternative approaches that have recently had some success, such as ETFs that invest in quality as well as quality. And momentum investing in general. This is redundant, but broader than simply investing in Magnificent 7.
Stop talking about numbers and profits and start offering “human-centered” advice
Spend more than a few minutes with a financial advisor and you’ll be dealing with some clients who are convinced they should put all their money into NVIDIA or Bolivia’s tin mines, and some who have investment ADHD and want to invest. It will tell you how difficult it is to do. One day he puts all his money into one investment and the next day he withdraws it.
Brian Portnoy and Neil Bage, co-founders of Shaping Wealth, discuss how financial advisors can move away from the focus on numbers and engage with clients on a more personal and emotional level. He is leading one of the early panel discussions on
It may sound nerve-wracking, but the competition for clients is increasing and how to provide financial advice that focuses on developing investor information rather than numbers (asset under management, fees, quarterly financial statements). A new field of research is emerging. Understanding behavioral finance and emotional intelligence.
Often referred to as “human-centered” or “human-first” advice, this style of investment advice can spend more time discussing the behavioral biases that lead to investment mistakes than the minutiae of the stock market. There is a gender. This may help clients develop behaviors suitable for long-term investing, for example (less trading, less market timing).
Proponents of this approach believe that this is a much better way to engage and retain clients long-term.
What am I missing?China
For many years, panel discussions on international investing, particularly investing in emerging markets/China, have been a staple of ETF conferences.
No more. There has been a notable lack of discussion about international investing, particularly China, with investors fleeing China and China ETFs as the political risks are currently perceived to be very high.
Admittedly, investing “outside of China” is a bit of a no-brainer.
The iShares Emerging Markets ex-China ETF (EMXC) was launched with much fanfare in 2017 and had few assets under management for several years. Things changed in late 2022, when China ETFs began a long, slow decline and EMXC experienced an explosion of inflows from investors who still wanted exposure to emerging markets rather than China.
