Strategic beta ETP market still expanding

Net new inflows globally amounted to US$87 billion - an organic growth rate of nearly 11%

Ben Johnson, CFA 14 March, 2019 | 2:00PM

Strategic or smart exchange traded products (ETPs) continued to expand in 2018, with net new inflows of US$87 billion, translating to an organic growth rate of nearly 11%. Over the past decade-plus, strategic-beta ETPs' market share has expanded considerably. Growth has been driven by new cash flows, new launches, and the entrance of new players—some of which are traditional active managers. However, more recently, the pace of these products' market share gains has decelerated as exchange-traded funds tracking more-traditional benchmarks have been garnering their fair share of net new flows.

At the end of December 2018, there were 1,493 strategic-beta ETPs, with collective assets under management of approximately US$797 billion worldwide.

Aside from slowing market share gains, this space is showing other signs that it is maturing, most notably a slowing pace of new product launches and increasing price competition. In 2018, the number of new product launches declined precipitously from the record level set in 2017. There were 132 new strategic-beta ETPs brought to market in 2018, down from 257 in 2017. The decline speaks to the fact that the menu has been saturated. This process of growth and maturation ultimately will lead to a culling of the herd, which has already begun in some countries, albeit to a limited extent.

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About Author

Ben Johnson, CFA

Ben Johnson, CFA  Ben Johnson, CFA, is director of global ETF research for Morningstar and editor of Morningstar ETFInvestor, a monthly newsletter.