What's New at FUSE

What's New at FUSE

——FUSE Blog——
November 20, 2020
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1) Robinhood Army Propels Thematic ETFs to a Record-Setting Year

Bloomberg  |  11/15/2020

Because… As industry leaders dominate the broad market index-based space, the potential of generating stronger returns and more sales will drive more ETF sponsors to introduce their own theme-focused products. Ark’s net inflows of $9.6 billion this year, which brought the investment boutique’s assets to $17.0 billion from $2.6 billion a year ago, best demonstrate how attractive high-performing thematic ETFs can be. Since thematic 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 that 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 dissatisfied if the overlapped security results in a heavy loss. Therefore, thematic fund providers should provide guidance on the analysis of portfolio composition and remind investors of the potential risks.

2) Vanguard and BlackRock Tighten Stranglehold on ETF Industry

Financial Times  |  11/17/2020

Because… BlackRock and Vanguard had combined ETF assets of $3.0 trillion at the end of October, accounting for 64.6% of the industry total. Their market share, which rose slightly from 64.1% as of year-end 2017, has been maintained at about the same level since 2018. Vanguard is catching up to BlackRock on the asset race. Vanguard held $1.3 trillion in its ETFs, lagging behind BlackRock’s $1.7 trillion. But their asset gap narrowed to $458.3 billion from $560.3 billion at the end of 2019. Vanguard ETFs brought in $151.7 billion this year through October, nearly doubling BlackRock’s $80.0 billion. On the one hand, asset concentration in these two leaders makes it tough for smaller players to grow in this highly competitive industry. On the other hand, the popularity of iShares and Vanguard funds sends a clear message that other ETF sponsors have to be innovative while keeping costs low.

 3) AQR to Liquidate Five Funds and Reorganize Seven

SEC Filings  |  11/17/2020

Because…AQR, a liquid alternative fund leader, had assets of $17.1 billion at the end of October, dropping 55.3% from 2017, 33.5% from 2018, and 23.2% from 2019. The firm experienced net redemptions of $4.4 billion this year through October after parting with $5.5 billion in 2019 and $8.1 billion in 2018. Its filing for the liquidations of five funds and reorganizations of another seven, which affects more than one-third of its 34-fund lineup, indicates that investors have lost confidence in its quantitative investing approach, risk management techniques, and value-oriented strategies. AQR’s asset decline and substantial outflows represent the struggles many liquid alternative funds are going through. FUSE’s analysis of alternative strategy funds shows that assets in this space already fell to $180.0 billion from $198.8 billion a year ago. Investors pulled out $12.6 billion in the first 10 months of this year and $23.3 billion last year. Most strategy categories, such as Global Macro, Long/Short Equity, Managed Futures, Multi-Strategy, and Alternative Credit & Currency, experienced net outflows in the past two years. Only Arbitrage and Risk Managed Equity posted positive sales.

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