The Fed’s blessing, as the biggest central bank on the globe, to buy ETFs is a watershed moment no matter how you cut it; and investors reacted by pumping money into the markets as Summit Roy points out – ETF flows were $48.8 billion in April. YTD flows bringing the total to $121.1 billion.  All this, of course has led to market sentiment flipping positive again and it is clear that the ETF wrapper is a hero in building investor confidence towards the ability to provide price discovery, maintain orderly markets and reflect investor sentiment. While the downside looked ugly and some today argue the upside appears irrational, confidence in the Fed’s aggressive actions using ETFs has made certain market participants feel flush again and rewarded those complacent so sellers are back on the sidelines. Nevertheless, Assets Under Management as of May 3, 2020 were down to $3.96 Trillion as compared to $4.44 trillion as of  December 31, 2019.

The Open To Close Ratio Will Be Seeing Headwinds in Q2 2020

Since our last report on the month of February, a lot has changed in this area. For the first time in history, the industry trailing 12 month Open-Close Ratio dipped below to .97 (211/218).  This was telegraphed by the Invesco news back in December. The number of ETFs traded in the US now stands at 2,270 down from 2,298. Launches during April and March were concentrated in a few issuers hands and totaled 8 in March and 27 in April (American Century, Innovator and BNY Mellon).

American Century, arguably, was the most important launch relative to innovation with its active ETFs in terms of AUM. Noteworthy is the fact that BNY Mellon free ETFs were launched with the largest AUM base for the month. Innovation is the life blood of our industry, which I write about in a white paper entitled,  “Measuring ETF Innovation.” In this paper, I write about a new industry KPI that measures a ratio between Low Cost Solutions vs Access, Alphas and Active. As our industry is known for acronyms we came up with  ACAI  or “Annual Client Alignment to Innovation (ACAI).” How these three different series of fund families succeed as measured by ACAI will be an interesting test of the KPI metrics over time.

Revenue from Active now stand at 6.68%

Active ETF strategies gained momentum over the past 2 extraordinary months, and now represent 2.50% of the Total US ETF AUM (previously 2.31%), but what is more curious is the fact that 6.68% of the  ETF ER 12 Month Revenue projection is now in active vs. previously it was 6.05%. This increase came as AUM by about 10% and therefore projected revenue declined to $7.2 billion from the last 12 month run rate projection of $8.25 billion. The change came mostly as Active ETFs stayed flat at about $102 billion in AUM while passive declined. As a baseline, at the end of January, it is noteworthy that there were 280 ETFs that are fully transparent actively managed ETFs and this number is now 275. The revenue number is up from $6.83 billion in December 2018 and will bounce around, but reflects an important aspect of innovation in the ETF industry.