A fresh batch of Wall Street firms are capitulating to the ETF frenzy with debut funds, competing in an already saturated US$15 trillion ($20.52 trillion) global industry.
Lazard’s asset management arm said this week that it’s looking to launch five new exchange-traded funds and hire people for its newly created global ETF team.
Raymond James Investment Management has its sight set on four ETFs, its first foray in the space, while San Francisco-based investment manager Hotchkis & Wiley filed in the first week of January. Meanwhile, Parnassus — a US$46 billion manager that also runs mutual funds — debuted two ETFs in the waning days of 2024.
The diminishing number of industry holdouts comes after a year in which mutual funds bled another US$575 billion while the famously tax-efficient and easier-to-trade ETF products netted US$1 trillion in flows, according to Investment Company Institute data compiled by Bloomberg.
“If you are an asset manager, you basically have to have an ETF product at this point,” said Todd Sohn, an ETF strategist at Strategas. “Otherwise you are missing out on a potential massive amount of flows and clientele.” In fact, the list of large asset managers — or those overseeing US$100 billion or more — that don’t have their own ETFs is “shrinking by the month”, Sohn says.
While the ETF market is absorbing outsized flows, success for managers is far from widespread, forcing issuers to introduce ever-more original products and beef up their distribution game. Roughly 200 ETFs closed last year, after more than 220 shuttered in 2023, underscoring how tough it can be to stand out in the highly competitive landscape.
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Yet the ETF space has become ever more alluring to holdouts, as evidenced by last year’s record-breaking year for inflows. It was also a year that saw more than 700 new funds start to trade, another all-time high.
The growth of the industry has attracted any number of newcomers, including hedge funds. Bridgewater Associates and Apollo Global Management are among those that have recently filed for their own products. Even MFS Investment Management — the firm behind the world’s first mutual fund — filed to launch its first ETFs last year.
“Many of these firms, like Raymond James, have offered mutual funds for years and are now looking to go where the real growth is: ETFs,” said Roxanna Islam, head of sector and industry research at TMX VettaFi. “ETFs add another revenue stream for these firms, while expanding brand recognition into an area more popular with the new generation of investors.”
