Allianz Life | 10/20/2021
Because… The Allianz Life study reaffirms the investor interest in socially responsible investing (SRI). In its annual U.S. Fund Fee Study published in August, Morningstar found that sustainable funds charge a “greenium” relative to conventional funds. These funds had an average asset-weighted expense ratio of 0.61% at the end of 2020, 20 basis points higher than 0.41% for their traditional peers. Meanwhile, Morningstar’s European Fee Study revealed that sustainable ETFs in five out of six large fund categories charge lower average annual fees than non-ESG funds in Europe. Investors do not have to pay more for actively managed sustainable funds either. For ESG fund providers in the U.S., bringing down the costs is imperative if they look to stand out in the increasingly crowded space. An ex-AQR research head once criticized that some sustainable funds are just expensive S&P 500 trackers, so fund managers need to reassess their fees and make an effort to reduce costs as much as possible.
ETF Stream | 10/22/2021
Because… When the news of a potential merger between Invesco and State Street’s asset management unit broke last month, we were unsure of the necessity of such a deal. We believe keeping the asset management business is a better decision for State Street. In the U.S. retail market, SSGA was the fifth largest fund firm among all long-term mutual fund and ETF managers as of September 2021 with $1.0 trillion of assets, whereas Invesco ranked #7 with $704.1 billion. Their combined assets of $1.7 trillion would still lag behind Fidelity, which, as the fourth largest asset manager, had $2.2 trillion. In the ETF space, SSGA was the third largest provider with assets of $988.4 billion, while Invesco was the fourth with $364.4 billion at the end of September. Their combined assets of $1.4 trillion would not be enough to challenge iShares’ $2.3 trillion and Vanguard’s $1.9 trillion. SSGA also boasts the industry’s first ETF, which is also the world’s largest ETF; the first and largest commodity ETF; and the oldest Sector Equity ETFs. The brand equity associated with these funds is an invaluable asset to State Street.
Financial Advisor IQ | 10/22/2021
Because… We are not surprised by the wirehouse’s cautious approach. ProShares Bitcoin Strategy ETF (BITO) benefited substantially from its first-mover advantage. Valkyrie Bitcoin Strategy ETF (BTF), the second bitcoin ETF on the market, only brought in $50.4 million as of October 27, a far cry from BITO’s $1 billion of assets. The facts that a futures-based ETF does not allow investors to own bitcoin directly and its price can deviate bitcoin’s spot price are major concerns that may impede the adoption of futures ETFs. Contango bleed is another key risk for investors. When a futures contract expires, the fund has to purchase another contract with a later expiration date. If the longer-dated contract is priced higher than the expiring contract, contango occurs. Bitcoin futures have historically experienced extended periods of contango, which may cause significant losses for the fund. This means investors can suffer from negative yield even when bitcoin’s spot price is rising.