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1) ProShares Files for Nine Thematic ETFs

SEC Filings  |  6/25/2021

Because… Besides ProShares, Invesco filed for one thematic ETF and launched two in June. Success stories of such thematic fund providers as ARK Invest, investors’ enthusiasm for triple-digit returns, and frustration of beating top leaders on their home turf have driven more ETF sponsors to jump on the bandwagon of thematic investing. As a greater number of thematic funds are filed and launched, fund sponsors need to contemplate whether their products can benefit investors in the long run. According to Competition for Attention in the ETF Space published in January 2021 by Swiss Finance Institute, specialized ETFs, which offer investors exposure to trendy themes at a high cost and low level of diversification, fail to create value for investors. Those that traded in the U.S. between 1993 and 2019 produced a negative alpha of about 4% a year for at least five years following launch. The research paper concluded that specialized ETFs attract unsophisticated investors to overvalued stocks and underperforming investment propositions. While one academic study is not enough to nullify thematic investing, fund providers need to be more circumspect in new product development.

2) Janus Henderson to Launch Five ESG-Focused ETFs

SEC Filings  |  6/25/2021

Because… We have seen a surge of ESG fund filings this year. In the past week alone, MainStay filed for the ESG Multi-Asset Allocation Fund on June 28. Northern Trust filed on June 24 for five ESG & Climate ETFs. Invesco filed on June 21 for two ETFs that track NASDAQ indexes. Since ESG offerings are all the rage, no asset managers want to lag behind their peers. In the retail market, investors now have access to a wider array of choices, but the proliferation of ESG funds makes it increasingly difficult for them to perform due diligence. The lack of universal standards is a major challenge for investors. ESG practices, metrics, and priorities are all distinct at different firms. Finding a good online source that provides comprehensive data on true ESG ETFs is another daunting task. The level of transparency varies drastically among fund providers too, which makes competitive analysis nearly impossible. Asset managers should address all these issues in addition to introducing new funds.

3) Virtus Investment Partners Announces Agreement to Add Stone Harbor Investment Partners as an Affiliated Manager

Virtus  |  6/28/2021

Because… Virtus experienced net redemptions of $1.3 billion in 2020, but its sales turned to a positive $119 million this year through May. Its Taxable Bond funds garnered $760 million in the first five months of the year, a dramatic reversal from last year’s outflows of $2.1 billion. The acquisition of Stone Harbor, a global credit specialist, will strengthen Virtus’ capability in the emerging markets debt area. Virtus now offers 25 fixed-income mutual funds, none of which is exposed to emerging market debt (EMD). Meanwhile, four out of seven of Stone Harbor’s retail funds are focused on EMD. The largest fund, Stone Harbor Emerging Markets Debt Fund, had $1.3 billion of assets as of March 2021, based on Morningstar data. Industrywide, Emerging Markets Bond mutual funds posted YTD inflows of $5.3 billion, compared with net outflows of $1.2 billion in 2020. The deal is also appealing because of the potential of bringing over Stone Harbor’s predominate clientele of global institutional investors, which include sovereign wealth investors, pension plans, foundations, endowments, and insurance companies.