ETF 2022 Year-End Report Card: Results are in. | Jobs Vox

By David Mann, Head of ETF Product and Capital Markets, Franklin Templeton

In the year As 2022 winds down, David Mann, head of ETF products and capital markets, assesses how the industry and its forecasts for the year have fared amid turbulent market conditions.

Rising inflation. Crypto winter. Double-digit declines in many equity and fixed income indices. I thought it would be good if I mentioned it. Any Of those in my 2022 prediction column. But in my defense, this is an exchange-traded fund (ETF) blog, and so macro calls on rates or broad index levels are not usually available here.

Rest assured, the ETF machine will keep humming along. Despite negative returns for the top 20 ETFs (by assets) for 2022, US ETF net income still stands at nearly $600 billion (as of December 12, 2022).¹ Those revenue streams have slowed somewhat from last year’s pace but are still impressive given these challenging market conditions. How those flows affected my results, read:

Prediction #1: Mutual fund to ETF conversion will continue to grow

Grade: B+

As I’ve mentioned repeatedly on this blog over the years, there are real advantages to the ETF structure, and some investors may value some qualities more than others. The long-term investor may value tax efficiency more than the short-term investor who values ​​intraday liquidity. An institutional investor may value the day-to-day transparency of portfolio analysis more than buying 100 stocks from retail investors. $600 billion in revenue by 2022 shows again that investors love ETFs.

I thought we would see a continued trend of mutual funds looking to join the ETF party. In the year By 2021, I counted 16 mutual funds with nearly $37 billion under management (AUM) converted to ETFs.² And this number is predicted to double by 2022. I wasn’t too far off! For 2022, I count 20 new funds with total assets (including those converted in 2021) of $63 billion;³ Not to mention the many other asset managers who have expressed their desire to change.

The converted assets didn’t reach my $100 billion forecast, but the doubling of both funds and assets was spot on. I think it deserves a B+.

Prediction #2: Global supply chain woes to shine a new light on global equity investing

Grade: B-

There are two elements to this forecast that need to be discussed. The first is global supply chain concerns and whether they have been addressed. My completely unscientific process of typing “supply chain issues” into a search engine leads me to confidently state that this is still an ongoing issue, especially given the current situation with China and Russia. As supply chain issues have not completely disappeared, the forecasting segment is on target.

Regarding global investing through ETFs, I have previously written a column on how both underlying domestic stocks and the strength of the domestic currency relative to the US dollar can return. For 2022, I predict significant diversification among ETFs that provide exposure to global equity markets. While some single-country ETFs outperform others (for example, ETFs holding Mexican stocks outperform those holding Japanese stocks by 20 percent).⁴), I was expecting more. My use of the word “significant” is not an easy one, and thus I am lowering my grade to a B-.

Prediction #3: Environmental, Social and Governance (ESG)/Sustainability ETFs will exceed $200 billion in AUM.

Grade: D-

In hindsight, I probably should have included European ETF assets in this forecast! To assess where we were a year ago in sustainable ETF assets, there were $38 billion in revenue and $126 billion in assets. He predicted that we would easily beat those 2021 numbers and end up over $200 billion. Well, I stayed that way because it was only $2 billion in revenue, and because of the market selloff, assets went down to about $100 billion.⁵

The starting point for my speculation was straightforward as I assumed (wrongly) that investors could add value by adding an ESG element to their broader market and/or active exposure. What I don’t expect is the backlash in ESG investing to the extent that many states are now enacting ESG bans. Normally I avoid getting into political waters, but I think so [redacted] In the coming months.

In conclusion, this has been the worst year in a while, so I really need to draw! Stay tuned for 2023 predictions coming soon!

What are the risks?

All investments involve risks, including loss of principal. The value of investments may also decline, and investors may not get back the full amount invested. Stock prices fluctuate, sometimes rapidly and dramatically, for factors that affect individual companies, specific industries or sectors, or general market conditions. Special risks are associated with foreign investment, currency fluctuations, economic instability and political developments.

For actively managed ETFs, there is no guarantee that the manager’s investment decisions will produce the desired results.

ETFs trade like stocks, fluctuate in market value, and may trade above or below the ETF’s net asset value. Brokerage commissions and ETF expenses reduce returns. ETF shares can be bought or sold at market prices throughout the day on a listed exchange. However, there can be no assurance that an active trading market will be established or maintained for ETF shares or that their listing will continue or remain unchanged. While ETF shares can be traded in secondary markets, they are not easily traded in all market conditions and may experience significant declines during periods of market stress.

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1. Source: Bloomberg as of 12/13/22.

2. Sources: NYSE Arca, NASDAQ and CBOE.

3. Sources: New York Stock Exchange, Chicago Board Options Exchange, NASDAQ, as of 12/15/22.

4. Source: Bloomberg as of 12/13/22.

5. Source: Morningstar.

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Editor’s Note: Bullets for this article’s summary were selected by Search Alpha editors.