The pace of launches, spurred by investor interest in thematic equity and ESG-integrated offerings, comes in the second full year of the SEC's ETF rule. The rule expedites the approval and listing process for active and indexed products that disclose their portfolios daily. In fact, the adoption of the rule may have helped to quell offerings in a variety of less-than-daily disclosed ETFs. Currently, only a handful of actively managed ETFs shield their portfolios.
While the BlackRock U.S. Carbon Transition Readiness ETF, now at $1.6 billion in assets under management, was the largest non-conversion launch of the year thanks to anchor investments from the $321.9 billion California State Teachers' Retirement System and Finland's Varma Mutual Pension Insurance Co., most of the new product attention was focused on the "will they or won't they" discussion regarding the SEC's approval of bitcoin and other crypto-based ETPs.
The SEC scuttled every spot bitcoin product it considered — highlighting concerns around investor protection in the cryptocurrency market. Ultimately, the ProShares Bitcoin Strategy ETF — an actively managed product holding front-month CME bitcoin futures — made it through the gauntlet and launched on Oct. 19. The fund now holds $1.2 billion in assets. (ETFs holding crypto assets directly are available in Canada, Brazil and several exchange in Europe.)
Dave Nadig, chief investment officer and director of research for ETF Database and ETF Trends, sees the hype around cryptocurrency ETPs as a bit of a red herring.
"Where crypto gets really interesting is in the tokenization of asset management and intellectual property to build the next generation of financial services," he said.
For example, in April, Franklin Templeton launched the Franklin OnChain U.S. Government Money Fund. The $1.85 million fund uses the Stellar blockchain technology as a secondary venue to record transactions alongside the in-house transfer agent. WisdomTree Investments Inc. has since indicated that it plans a similar offering with traditional book entry handled by Securrency, a blockchain-based fintech company, and back-up tracking on Stellar. WisdomTree, State Street Corp., U.S. Bancorp and Abu Dhabi Catalyst Partners were the announced lead investors in Securrency's $30 million Series B financing announced in April.
Another index and ETP adjacent innovation that caught wind in its sales in 2021 was "direct indexing," essentially programmatic portfolio management akin to separately managed accounts.
Over the course of the year, a handful of companies offering direct and customized indexing were acquired by large asset managers and financial institutions including BlackRock, Morgan Stanley and Vanguard (making its first ever acquisition). These platforms offer broader, and eventually more customized, direct equity holdings for smaller accounts and better tax management compared to a mutual fund or ETF.