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Written by: Michael Prendergast, ETF Product Specialist, Ultimus Fund Solutions
The 2023 ExchangeETF Conference was an important gathering for the ETF industry and ETF-centric advisors in what no doubt will be a pivotal year that will 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. Besides our active participation in the conference, we decided to write a review and share our thoughts on this year’s event to give our RIA and asset management clients a deeper sense on what is going on within the ETF marketplace.
The opening Keynote discussed how ExchangeETF brings together all components of the ETF ecosystem including administrators, auditors, law firms, market makers, exchanges, 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 to 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 11 important meetings in two days all in one trip.
Shortly prior to gathering in Florida, the ETF Industry lost a legend: Kathleen Moriarty, aka “The SPDR Woman,” who was a tireless innovator, selfless teacher, and mentor to many. The Women in ETFs Tribute to ETF Pioneer Kathleen Moriarty early on the first day took time to properly celebrate Kathleen. The Women in ETFs group also separately at other important sessions spoke about their mentoring opportunities, women leadership programs, and shared their advice on how they professionally maneuvered through the industry with lessons learned.
As to the health and growth of the industry - even through a difficult investment climate last year - ETFs had a very good year in 2022 with $600B of positive inflows - the 2nd largest inflows on record after 2021’s $900B record breaking year. The buzz at the conference resonated with predictions of another year with $600B-$900b in positive flows but some predicting we may even hit $1trillion in 2023 as advisers and asset managers are increasingly turning to ETFs as a preferred investment vehicle.
Here are some of the key discussions from the 2023 ExchangeETF Conference:
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The SEC is scrutinizing - There are a number of regulatory themes at play out there that are in general for registered products that the SEC is looking at that are impacting ETFS. Many expressed concern and spoke of how the SEC is becoming more focused on ETFs. For example, they are starting to look at mutual fund to ETF conversions.
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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 if there are ways 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, 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.
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Back to basics - 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, stability, and managing volatility within portfolios. The focus this year was gaining alpha and stability in portfolios.
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Katie pulled things that she thought would be of interest at sessions
From our perspective, the concerns about the increasing SEC regulatory issues are just a reinforcement on 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. Our client servicing model stands ready to help RIAs and asset managers navigate the regulatory landscape for existing products, as well as on products they are thinking of launching.
Our take on concerns for a difficult market ahead in 2023 is that, despite these concerns, Ultimus continues to see significant growth in ETFs. Place some stats/links on the rate of ETFs and tender/interval fund creation trends. We can verify this based on our pipeline as we see our clients launching and planning to launch new products in the ETF space. 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, like tender/interval fund. We are poised to help our clients with the technology and innovation support needed for more complex products coming into the market.
In the ETF Infrastructure: Mastering the ETF Eco-System panel - geared to new entrants to the ETF marketplace which can seem a little daunting at first - I explained some of the nuts and bolts of creating and managing an ETF in the real world. One of the key decisions is whether to start your 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 can involve many moving parts, including appointing a board, hiring your own services providers, among other responsibilities and requirements. With most managers not having the expertise or time to dedicate to that process, a quick option may be going into a series trust as a turnkey solution with an established experienced board and other services providers built in. Using such a service can take as little as five months to bring the first product to market versus building the operation from the ground up that generally takes six to nine months. Fortunately, there are tons of resources out there to help managers come to market quickly. Fund administration service providers can also be a huge wealth of information and guidance. The infrastructure Ultimus has built is extremely robust and our technology is very agile.
As to our view from the exhibit hall booth, there were a lot of conference participants looking to talk to us to get our views on product ideas/structures and distribution trends. We also utilized the booth hall to network and get to know what other providers are doing, including spending a lot of time with COI’s, market makers, advisors, and other key players to get a better idea of their business, trends they see, discuss type of products they are doing well in, and products that give them concerns. This Conference provided us with a deeper perspective and understanding where the ETF industry and advisors are headed in the coming year.
Related: The Importance of Risk Management in Fixed Income Markets