Despite significant market turbulence in 2018, ETFs continued to grow in popularity and gain assets.
ETF assets at year end totalled approximately $3.4 trillion. While that number is significantly lower than the $18.7 trillion assets in mutual funds, it's still a pretty hefty total.
In a recent article, the Wall Street Journal shared what they see as the top 5 trends ito watch for in ETFs in 2019.
1. The long awaited final ETF rule from the Securities and Exchange Commission. There have been a few false starts, but experts expect the rule to come to fruition in 2019. The rule is designed to "level the playing field" for ETFs. The way things are currenly set up, some managers have more flexibility that others regarding "how baskets the holdings used to create and redeem index-tracking funds are built."
2. The ongoing fee war will continue. While it has been present in U.S. funds for some time, it's now spread to international and fixed-income funds, specialty and ESG products. This could also lead to increased robo advisor offerings.
3. Funds will continue to struggle with low assets. Because so many new products were introduced, many struggled to reach significant assets and eventually closed. Of the ETFs launched between 2007 - 2016, nearly half failed to reach $50 million in assets by the end of their first year and have since closed. Of those remaining, approximately 30% are still below $50 million.
4. Many investors will be re-evaluating the factors and fundamentals of products. 2018 was a rough year for "smart-beta" ETFs - index funds that focus on dividends, etc. The coming year could be tough on funds that are sector or geography based as well as funds that are not easily understood.
5. This year will likely bring about more closures, as competing with the bigger products will become even more challenging. However, with smaller struggling funds closing, healthier funds will survive leaving room for new issuers as well.
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