Four Trends for ETF Content Marketers to Watch
Finding white space and gaining mindshare with investors and financial advisors can be challenging for exchange-traded fund (ETF) providers given the rapidly growing number of asset managers that are entering the ETF arena. But the pie is growing, and the rewards of gaining an edge in ETF marketing can be immense.
ETFs continue to gather inflows in a difficult market environment. U.S.-listed ETFs gathered nearly $600 billion in 2022 for their second-best inflow year ever, according to Morningstar, despite lower stock and bond prices. Although falling markets are a headwind for both ETF flows and asset growth, the outlook for ETF business looks solid when compared against traditional mutual funds. U.S. active mutual funds suffered outflows of more than $900 billion in 2022, according to Morningstar. The chart below from Morningstar’s Ben Johnson shows trailing 12-month estimated net flows for U.S. ETFs and actively managed funds. The trend is clear.
Difficult markets took a much bigger bite from mutual funds than ETFs
Today in “Life After Mutual Funds”…
Year-end ’22 numbers are in:
– Mutual Funds – $958 Bil outflows
– ETFs – $589 Bil inflows
A $1.55 Trillion swing in favor of ETFs–the largest ever. pic.twitter.com/UWpbrWxLac
— Ben Johnson, CFA (@MstarBenJohnson) January 11, 2023
An effective ETF content strategy can be a powerful way for ETF marketers to stand out in a highly competitive—and increasingly crowded—field. To help out, we’ve identified four topics that asset managers should consider exploring in upcoming thought leadership campaigns.
1 – ETF trading and liquidity in volatile markets
Although volatility is never fun, it provides an opportunity for ETF providers to showcase the liquidity of their offerings.
ETFs have been around for more than three decades and are an undeniably important part of global markets. The volatility caused by inflation, monetary policy uncertainty, geopolitical unrest, and—most recently—fears about the stability of banks’ balance sheets, means the liquidity of ETFs is even more important to investors who need to move fast, trade large volumes, or both.
From the Flash Crash to the Taper Tantrum, ETFs have helped investors express a view or hedge in turbulent markets. A more recent example is the breathtaking trading volume and volatility in ETFs that invest in U.S. regional banks in the wake of the collapse of Silicon Valley Bank.
“That surge in volume highlights an often touted key feature of ETFs: their usefulness as trading tools,” Bloomberg reported. “ETFs, which track a basket of securities and tend to be highly liquid, often see activity spike in tumultuous times given that they can be easily traded, allowing investors to quickly shift exposures.”
For asset managers with large ETFs that have above-average assets and trading volume, market volatility is a chance to tout the liquidity and tight spreads of their funds. This message resonates particularly with institutional investors.
2 – Active ETFs’ time to shine?
Actively managed ETFs are gaining momentum. Several well-known asset managers, including J.P. Morgan, Capital Group, and Dimensional Fund Advisors, have recently begun packaging their active strategies in the tax-efficient ETF structure. U.S.-listed active ETFs comprise less than 5% of the overall assets but account for 12% of the industry’s net inflows, according to WealthManagement.com.
One month certainly doesn’t make a trend, but we were intrigued to see that although U.S. ETFs saw a rare outflow in February 2023, active ETFs saw money come in the door.
“In a cloudy month for both returns and inflows, active ETFs were a bright spot. They hauled in about $8.6 billion as their index-tracking counterparts shed about $10.4 billion,” according to Morningstar.
“Active is an interesting space where regulatory changes have allowed many new types of ETFs to come to market, such as nontransparent, semitransparent, and fully transparent ETFs,” said Deborah Fuhr, co-founder of ETF research and consultancy firm ETFGI, at the World of ETF Investing Virtual Expo.
These ETF structures have different levels of portfolio disclosure and the less transparent versions may appeal to active portfolio managers worried about “revealing their secret sauce,” she added.
For providers of active ETFs, it’s important to educate investors on the level of transparency of their particular lineup—and why it matters for their particular strategy. It’s also valuable to have foundational marketing content that explains how ETFs are different from mutual funds, including tax efficiency and liquidity.
3 – Thematic ETFs: the pause that refreshes?
Fuhr also noted that many new investors entered the market during the pandemic and tapped thematic ETFs to invest in specific areas such as electronic vehicles and artificial intelligence (AI).
Many thematic ETFs fell on hard times in 2022, though, amid a tough market for growth stocks. Still, it appears to be way too early to write off thematic ETFs. These strategies could make sense for investors looking to ride long-term investment trends such as remote work or climate change.
Some smaller, younger ETF firms have embraced thematic ETFs as a way to differentiate themselves. From a marketing perspective, thematic ETFs obviously lend themselves to storytelling. In that way, thematic ETFs are more like individual stocks than index funds.
Thematic ETF providers may want to consider educational content on how they can be used in portfolios. For example, thematic ETFs in smaller allocations at the fringe of the portfolio could make sense to seek outperformance and complement core diversified positions. Furthermore, ETF providers can create infographics or videos that explain how financial advisors or investors can use thematic ETFs to invest in a trend that they have conviction in.
4 – ETFs as separate share classes of mutual funds
An expiring patent could lead to more asset managers launching ETFs as separate share classes of their existing mutual funds.
Vanguard is the second-largest U.S. ETF provider with assets of nearly $2 trillion at the end of 2022, according to Morningstar. Vanguard appears to have a competitive advantage with an ETF structure it patented: the firm’s ETFs are separate share classes of its mutual funds. As Heather Bell reports for ETF.com, this approach made it easier for Vanguard to launch ETFs and also provided tax advantages for its mutual funds.
After 20 years, though, the patent is reportedly set to expire in May 2023. If more managers launch ETF share classes of existing mutual funds, there will be a need for content that clearly explains how the structure works. In particular, managers will have to educate shareholders in the existing mutual funds what adding an ETF share class means for them.
Moving the needle with ETF content marketing
The ETF Terrordome is aptly named. The ETF business is extremely competitive, and it’s tough to stand out, which is why managers need to get creative in developing timely, insightful content strategies.
The trends discussed above should give ETF marketers some potential ideas to make sure they’re hitting the topics and themes that clients and investors are focusing on now.
If you would like to chat about how to apply these trends to your marketing strategy, please contact us.
About the Author John Spence is Director, Marketing and Content Strategy, at Wentworth Financial Communications. He collaborates with a team of writers and editors at Wentworth to help firms across the financial services industry build their brands and articulate their expertise by creating investment-grade white papers, bylined articles, newsletters, blogs, social media posts, and other forms of content marketing.