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1) Actively Managed ETFs Continue Their Stellar Growth Trajectory

ETF Trends  |  7/1/2021

Because… Not only did actively managed ETFs gained momentum, but actively managed mutual funds in the U.S. retail market also witnessed strong half-year sales. According to Ignites’, active mutual funds raked in $155.2 billion this year through June, making it the best half-year since 2009 and the first half-year period since 2014 where active funds recorded positive flows every month. However, bond funds contributed to nearly all the mutual fund inflows with $166.7 billion into Taxable Bond, $50.6 billion into Municipal Bond, and $100.0 billion out of U.S. Equity. In the actively managed ETF space, Taxable Bond led with $18.7 billion, followed by $13.0 billion into U.S. Equity and $10.5 billion into Sector Equity. The year-to-date sales figures suggest that investors have continued to move their exposure to U.S. Equity from active mutual funds to passive ETFs, and active U.S. Equity ETFs are picking up steam this year as their inflows of $13.0 billion in the first six months already exceeded their intake of $12.3 billion throughout 2020.

2) DFA Files for Four Bond ETFs

SEC Filings  |  7/7/2021

Because… These will be DFA’s first bond ETFs. The firm now offers seven equity ETFs with combined assets of $30.5 billion, including four recently converted from mutual funds. Like their equity counterparts, the four bond ETFs will also be actively managed. Industrywide, active Taxable Bond ETFs had $110.6 billion in assets as of March 2021, up from $72.0 billion a year ago. They garnered $9.9 billion in 1Q21 and $25.7 billion in 2020. Active Municipal Bond ETFs held $6.5 billion, more than doubling their assets of $3.1 billion in 1Q20. Their inflows of $1.1 billion in 1Q21 already accounted for 41% of the 2020 intake of $2.6 billion. First Trust was the largest active bond ETF provider with $28.0 billion in Taxable Bond ETFs and $2.5 billion in Muni Bond ETFs. JP Morgan was the second largest with $21.0 billion of active bond ETF assets, followed closely by PIMCO’s $20.9 billion. DFA needs to play catch-up, but in some categories, such as Inflation-Protected Securities, becoming a leader is not too difficult due to the lack of competition.

3) Vanguard to Offer Direct Indexing Capabilities through Acquisition of Just Invest

Vanguard  |  7/13/2021

Because… The acquisition is the first in Vanguard’s 46-year history. Just Invest’s technology provides advisors with the ability to personalize investment portfolios to reflect investors’ values, financial objectives, and tax-loss-harvesting needs, according to the press release. Last year, BlackRock acquired Aperio in November, which delivers customized indexing solutions that can reflect each client’s unique risk, tax, and personal values preferences. Morgan Stanley bought Eaton Vance in October, which was the parent company of direct-indexing provider Parametric. Schwab purchased Motif’s technology in May to build its direct-indexing capabilities. Goldman Sachs took over Folio Financial, also in May, to leverage its two-decade direct-indexing experience. These moves indicate that the demand for direct-indexing, which offers customization and more tax efficiency than ETFs and mutual funds, is growing. We believe this is an industry disruptor, perhaps the biggest disruption, and will be following it very closely. Stay tuned.