• Andrea Murray

Can ESG ETFs Overtake Traditional Products?



Last week two additional firms filed for crypto and blockchain ETFs with the SEC bringing the total to more than 12 firms waiting for approval. Fund launches were relatively quiet in Europe last week and flow numbers are starting to be released around the globe. And interesting thoughts from Detlef Glow on whether or not ESG assets will surpass conventional ETFs. Read on for more top ETF highlights from this week.


Fund Launches and Updates

EUROPE

The AuAg ESG Gold Mining UCITS ETF (ESGO) will list on the London Stock Exchange with a total expense ratio of 0.60% and provides an ESG overlay on gold mining equities. ESGO has been launched by AuAg Funds via white-label ETF issuer HANetf and will be classified as Article 8 under the Sustainable Finance Disclosure Regulation (SFDR). Link


BNP Paribas has launched a low carbon ETF offering investors access to a global portfolio aligned with the goals of the Paris Agreement. The BNP Paribas Easy Low Carbon 300 World PAB UCITS ETF will physically replicate the Low Carbon 300 World PAB index for an ongoing charges figure of 0.3%. Link


THE AMERICAS

ARK Investment Management has joined the race to get a bitcoin ETF approved by the U.S. Securities and Exchange Commission. According to SEC filings, the noted tech investor is partnering with investment product firm 21Shares in submitting a bitcoin ETF application. The “ARK 21Shares Bitcoin ETF” would tap 21Shares’ expertise in spinning up crypto exchange-traded products. Link

More actively managed ESG ETFs to come as Janus Henderson Group announced the filing of a preliminary SEC registration statement for five actively managed sustainable ETFs for investors in the U.S. Janus Henderson plans to offer three equity and two fixed income ETFs, including U.S. Sustainable Equity ETF (SSPX), International Sustainable Equity ETF (SXUS), Net Zero Transition Resources ETF (JZRO), Sustainable Corporate Bond ETF (SCRD), and Impact Bond ETF (JIB). If all approvals are granted, the funds are expected to launch on or around September 9, 2021. Link


And even more new potential entrants to the digital asset space as ProShares filed a preliminary prospectus for the ProShares S&P Kensho Crypto & Blockchain ETF. Link


IndexIQ announced the launch of its newest ETF – the IQ MacKay ESG Core Plus Bond ETF ESGB. ESGB is an actively managed strategy that seeks total return across a broad portfolio of fixed income securities while incorporating MacKay’s ESG analysis framework. The portfolio prioritizes issuers that demonstrate strong performance relative to peers across certain ESG metrics through selection and portfolio construction. Link


The largest dividend ETF by assets, Vanguard Dividend Appreciation ETF (VIG), is switching benchmarks, moving from NASDAQ US Dividend Achievers Select Index to the S&P U.S. Dividend Growers Index. Link


Roundhill Investments, the issuer behind thematic tech funds like the Roundhill Sports Betting & iGaming ETF (BETZ), launched an ETF designed to capitalize on the emergence of persistent virtual worlds and economies. The new ETF, the Roundhill Ball Metaverse ETF (META), tracks companies involved in the “Metaverse,” which is a concept of a next-gen Internet that’s persistent, interoperable, synchronous, and open to everyone, with its own fully functioning economy and both virtual and real-world experiences. Link


With so many launches last week in the U.S., and to avoid a novel length newsletter, please find additional launch details below:

BlackRock plans to change the benchmarks of 10 iShares ETFs that together have about $20.7bn in AUM. The funds will switch from Dow Jones benchmarks to indices provided by FTSE Russell, effective on or around September 20. Full List Here


In Canada, Franklin Templeton Canada listed the Franklin Brandywine Global Sustainable Income Optimiser Active ETF (FBGO), Franklin ClearBridge Sustainable Global Infrastructure Income Active ETF (FCII) and Franklin ClearBridge Sustainable International Growth Active ETF (FCSI) on the Toronto Stock Exchange. Link


ASIA-PACIFIC

Cryptocurrency investment house Monochrome is planning to launch Australia’s first Bitcoin exchange traded fund. The firm launched the Monochrome Bitcoin fund in June which was a wholesale managed investment fund with a 100% allocation to Bitcoin. It was now looking to expand this to an exchange traded product after seeing “significant demand from institutional investors”. Link

Flows


In the U.S., numbers are out and the ETF market saw investors put $77 billion in the market in June. The inflows last month are a 15% increase over May’s flows, and puts the industry on track to easily break the full-year record of $507.4 billion from 2020 in a matter of weeks. The first half of 2021 ended with $472.5 billion in assets for U.S.-based ETFs.


U.S. equity funds added $37.7 billion in assets during the month, a 55% increase over May’s tally, while international equities gained $19.8 billion for a 13.7% gain month-over-month. The Invesco QQQ Trust (QQQ) led the charge among all funds, with $6.16 billion in flows during the month as tech flourished, while the SPDR S&P 500 ETF Trust (SPY) was a distant second, at $4.9 billion. On a year-to-date basis, U.S. equities have a net gain of $219.2 billion and just more than $3.8 trillion in assets under management, while international equities have gained $138 billion and stand at $1.3 trillion in total assets. Link


Howie Li, Head of ETFs at Legal & General Investment Management, discussed the outlook for the European ETF market in H2 of 2021 and believes that “the European ETF market is set for a record year, with net flows hitting nearly $110bn so far in 2021. Equity ETFs have accounted for 80% of total net flows and in the thematic space we are seeing another bumper year, with net flows of over $10bn already.” Link


Active ETF strategies are continuing to grow in the U.S., helped by the ETF Rule which provided a clear and consistent framework for active managers to take advantage of the ETF structure, and less than two years later the number of actively managed strategies and assets have more than doubled. There are currently more than 600 Active ETF strategies listed in the US, while assets under management recently crossed the USD250 billion milestone. Link


In Canada, ETFGI reported ETF/ETP assets reached a record US$246.13 Bn at the end of May. ETFs listed in Canada gathered net inflows of US$6.09 billion during May, bringing year-to-date net inflows to US$22.25 billion. At the end of the month, Canadian ETF assets increased by 5.3%, from US$233.83 billion at the end of April to US$246.13 billion, according to ETFGI's May 2021 Canadian ETFs and ETPs industry landscape insights report, the monthly report which is part of an annual paid-for research subscription service. Link


Noteworthy


Given a large number of ETF benchmark changes from conventional to ESG, it was interesting to read Detlef Glow’s (via ETF Stream) take on the impact of this movement and where he sees these funds heading in the future. Generally speaking, he disagrees with the idea that ESG-related products will become market leading products in terms of the number of funds or the assets under management in the foreseeable future, as too many portfolios from institutional and private investors currently are benchmarked against conventional indices. It will take a longer time period for this to change. In addition, there will always be some investors who want to invest in the broad markets, which will also include stocks and bonds from companies which are not in a sustainable sector or in general are seen as non-sustainable. Link


CSOP Asset Management, one of Hong Kong’s fastest-growing ETF issuers, has embarked on a product-launching spree to capture the rising demand for thematic exposure to technology companies. Ding Chen, chief executive of CSOP, said the manager was quickly expanding its tech-themed ETF line-up, aiming to form a suite of about 10 new ETFs within one to two years. CSOP has listed 29 ETFs in Hong Kong with a collective $5.64bn in assets, 15 of which were launched in 2020 and 2021. Link


The race to lower and lower pricing that dominated the passive market over recent years has fallen away, and, in light of Covid-19, execution and liquidity are more important, according to Roxane Sanguinetti, head of fixed income and investor relations at ETF market maker GHCO. ‘I think it is important,’ she said. ‘But they are becoming less important if you look at things such as bitcoin ETFs, for example. Between the time you place an order and the time it is executed, it could have already moved 1% and that’s on top of an 80bps spread. Then it could rise 30% next month, and then do you really care about a management fee?’


Sanguinetti said that although costs could potentially drop lower, investors should look more closely at the liquidity of the product they are investing in rather than any ongoing charge. This, she said, is as important as looking at the correlation of your holdings. Link


India’s $442 billion asset management industry is finally having to reckon with the passive investing juggernaut. After decades of sluggish growth, the number of accounts invested in index-tracking or exchange-traded funds more than doubled to 5.6 million in the year to April. Passive products now account for nearly a quarter of equity assets under management versus about 16% two years ago, data from the Association of Mutual Funds in India show. That compares to more than 50% in the U.S.


The foundations for the boom were laid by a series of regulatory changes preventing active fund managers from gaming the league tables. What supercharged it was the Covid-19 pandemic which, like elsewhere, stoked a retail investing surge that’s seen millions of new young day traders pile into Indian equities via online apps. Their interest is now spilling over into ETFs, creating an opening for an up-and-coming asset manager to become India’s own Vanguard. Link


ETC Group has announced that its leading crypto ETP BTCetc - ETC Group Physical Bitcoin (BTCE) will be the first Bitcoin ETP to go carbon neutral. ETC Group will offset the carbon footprint of BTCE, its flagship Bitcoin ETP, with hand-selected, high quality carbon credits, compensating for the CO2e1 emissions associated with BTCE Bitcoin mining and transaction activities. These carbon credits will support projects curated and managed by some of the most respected climate and conservation groups in the world. Link


In case you missed it…

Happy 4th to our American readers! According to the National Sausage and Hot Dog Council (NHDSC), Americans are expected to eat 150 million hot dogs over the July 4th holiday. This is part of an estimated 7 billion that are expected to be eaten during the summer season from Memorial Day to Labor Day.


Disclosure: This newsletter consists of curated articles which we have read across the globe and while we can't include every ETF related news item, we would like to hear your thoughts on something we may have missed that you feel is important. All information is sourced from 3rd party media outlets, not our own material and should also not be viewed as financial advice.

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