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1) Neuberger Berman Next Generation Connectivity Fund Announces $1.5 Billion Initial Public Offering

PR Newswire  |  5/26/2021

Because… The asset-gathering success of Neuberger Berman Next Generation Connectivity Fund shows the popularity of thematic funds, especially technology-focused funds. According to Morningstar, technology funds accounted for 71% of the total assets of $160 billion in U.S. thematic mutual funds and ETFs. Asset managers should not only bring new funds to the marketplace but also explain their usage. Since these funds do not belong to a traditional style box and may invest in any market segments as long as portfolio managers deem that the selected securities share a common theme, investors are very likely to hold securities they have already acquired through other funds. While investors will not complain if the overweight in a specific security turns out to generate strong returns, they could feel very dissatisfied if the overlapped security results in a heavy loss. Therefore, fund providers should provide guidance on the analysis of portfolio composition and approaches to optimize portfolio performance.

2) PIMCO to Introduce the Municipal Income Opportunities Active Exchange-Traded Fund

SEC Filings  |  5/27/2021

Because… Besides PIMCO, Amundi filed for Pioneer Municipal High Income Opportunities Fund, a closed-end fund, on May 26, 2021. Municipal Bond mutual funds and ETFs raised $43.3 billion in the first four months of 2021, approaching their 2020 total of $55.8 billion. At this pace, sales of the asset class could surpass last year’s intake within the next couple of months. Municipal Bond mutual funds collected $35.8 billion this year through April, which represented 85% of their sales throughout 2020. Municipal Bond ETFs pulled in $7.5 billion, accounting for 55% of their 2020 total. Municipal Bond mutual funds had assets of $923.1 billion as of April, up 5% from year-end 2020. Municipal Bond ETFs held $69.2 billion of assets, increasing 12% from the end of last year. Although ETF assets in the asset class grew faster this year than their mutual fund counterparts, ETFs only accounted for 7% of mutual fund assets. While ETFs’ tax efficiency is irrelevant for tax-free muni bonds, their lower costs and better transparency should still make them a desirable option.

3) ETFs Follow Different Path in 2021

ETF.com  |  6/1/2021

Because… The accelerated pace of ETF launches and the significant decline of ETF closures indicate that ETF providers are trying to capitalize on the industry boom this year. However, we believe in the survival of the fittest. At the end of March 2021, there were 1,152 ETFs with less than $100 million in assets, accounting for 47% of the total number of ETFs. Many small funds are struggling to survive before they can generate any meaningful profit. Meanwhile, large funds are becoming even bigger because they either already have a very low expense ratio or have the scale to reduce their expense ratio down the road. Their increased size and liquidity are posing a threat to small funds, which could drive these funds out of the market eventually. ETFs with focused strategies or exposed to niche markets will be especially vulnerable because of their elevated risks and higher costs. We advise fund sponsors to take a deliberate approach for fund introductions in order to avoid a short shelf life for new ETFs.