ETF launches often alternatives and derivatives

A review of new ETF products serviced by BNY Mellon during the nine months to September 30, 2015 suggests that exchange-traded funds (ETFs) representing derivatives and alternative strategies were the most popular type of product launched during 2015. Alternatives and derivatives-based ETFs accounted for 25 percent of new funds over this period, says BNY Mellon, continuing the trend seen in 2014 when they accounted for the same percentage.

Smart beta ETFs accounted for 12.5 percent of new launches, fixed income accounted for 6.25 percent, and actively managed ETFs accounted for five percent. BNY Mellon serviced a total of 64 new funds in the nine-month period.

Steve Cook, business executive, structured product services at BNY Mellon, speaking at the bank’s annual ETF Symposium in Dana Point, California, said that growing interest from registered investment advisors looking for downside protection appears to be an important driver of the growth of alternatives-based ETFs. In addition the possibility of rising interest rates has advisers looking for alternatives to fixed income investments, he said, the structure and tax efficiencies of ETFs enhancing the attractiveness of this type of investment.

He attributed the increase in smart beta ETFs launched and serviced by BNY Mellon in 2015 to the increasing number of entrants developing these offerings. In 2014, this type of ETF accounted for 4.4 percent of BNY Mellon’s new ETF strategies. The number of actively managed ETFs launched in 2015 declined to five percent from 25 percent in 2014, BNY Mellon said.

“We attribute the lower level of actively managed launches in 2015 to pending regulatory rulings on this segment of the ETF market,” said Cook. “Many firms with these active offerings in the pipeline are awaiting the outcomes on these rulings before moving ahead. We expect a significant upswing in actively managed ETF launches once the new regulations become clear.”

BNY Mellon calculates that it is one of the world’s largest ETF servicers; this is the fourth year that it has hosted its ETF Symposium, which highlights best practices and strategies for registered investment advisors, sponsors, investors and other participants in the ETF Industry.