For the first time in over a year, the capital markets treated allocators well in both fixed income and equities, despite the banking specific volatility which the Fed and Treasury acted swiftly to contain in Q1 2023. This allowed allocators to take advantage of the valuation resets we have seen occur since this time last year and we saw that in flows and ETF product creation.
Another positive development that occurred was a higher level of dispersion among all sub-asset classes of equities. An example of this was the tech sector ETF up 19% during the quarter VS the financial sector ETF down -7%. The higher level of dispersion during the quarter led to allocators using more sector specific ETFs and increased flows to active ETF strategies as stock picking VS index picking has begun to add alpha again.
While the ETFs continue to attract net new flows VS mutual funds, equity ETFs still represent only 14% of the equity market and only 2.8% of the bond market from an AUM perspective. Looking at turnover however, trading volume as a percentage of total U.S. equity volume reached nearly 40% via ETFs during the quarter. Fixed income trading also increased 13% VS last quarter, as record flows came into bonds due to higher yields available and does not appear to be slowing. Part of what fed into bond ETFs attracting flows, pulling deposits away from banks, is that real interest rates are above inflation now, and that is drawing money away from traditional savings accounts into fixed income.
US ETF stats at the end of Q1 2023:
At the close of Q1, MarketPlace was tracking 3340 ETFs from 297 individual asset managers sponsors via the 13F filings. For the quarter this amounts to over 350k individual positions which are linked to an allocator inside of MarketPlace
This is a net increase of 30 new ETF managers/sponsors, however only net new 12 ETFs VS the last quarter of 2023 due to closures and a reminder that an exchange has the right to kick off ETFs that do not maintain minimum volume and liquidity requirements.
Looking fund closures, these are up 200% YoY as 58 ETFs have liquidated in Q1 as allocators have become more selective in how they deploy cash…especially now that cash is an asset class again. Many of the closures took place in the thematic, digital crypto, and SPAC based area as asset managers rationalized their lineups.
Launches are down slightly during Q1 at 20% YoY with 94 new ETFs coming to market. There was a noticeable drop in ESG themed ETFs with 58 coming to market VS 101 during the same time last year. Higher expense ratios and political headlines have created a headwind to sustained interest.
Some stats on the asset classes and sub-asset classes launched:
The universe of actively managed strategies continues to grow as there are now 1,113 actively managed ETFs. Q1 saw inflows into actively managed ETFs meaningfully take share at 33% of ETF net new money with JPMorgan and DFA taking the majority of the flow.
All major active ETF asset classes saw net inflows except for alternatives which were flat, losing the breakneck momentum they had in 2022. Interestingly, an allocator commented on our show earlier in the year that they expected money to leave alts and go back into traditional asset classes.
ETF Launches that we thought were of interest among the Q1 13 F filings:
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Written By: Gui Costin, Founder, CEO
Gui Costin is the Founder and CEO of Dakota.
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