While 2019 has seen a lot of volatility, it has also seen continued growth within the ETF market. In fact, U.S.-based ETFs hit a new milestone with $4 trillion assets under management. But that hasn’t been the only major shift related to ETFs this year. Offering increased transparency and flexibility, the passing of the “ETF Rule” has helped to pave the way for new ETF strategies and opened the door for more changes ahead.

Key Takeaways

  • Highlighting continued ETF growth, U.S.-based ETFs surged to over $4 trillion assets under management in 2019
  • While volatility has had an impact on the markets, low-volatility ETFs have benefitted from recent market swings
  • The recently-passed “ETF Rule” has made it easier for ETF issuers to bring new strategies to market

The Impact of Volatility

Investors following the markets this year have been subject to a true rollercoaster ride. From trade tensions between the U.S. and China to speculation about the inverted yield curve, there has been no shortage of events keeping investors on their toes.

Despite the ups and downs, the ETF market has seen stable growth over the past year with low-volatility ETFs and fixed income ETFs benefitting from investor fears. A key source of growth within the ETF market, the popularity of these ETFs signals a positive trend for the year ahead.

The popularity of low-volatility ETFs has also highlighted another key trend this year—the flow of assets into less risky asset classes. This includes overall inflows of $197 billion into ETFs, as well as inflows of $97 billion into fixed income ETFs, and $82 billion for equity ETFs. Combined, this flow of assets shows a desire to mitigate liability and increase diversification.

How the “ETF Rule” Is Reshaping the Market 

Originally proposed in 2018, the “ETF Rule” was passed by the Securities and Exchange Commission (SEC) in September 2019 and is expected to have a big impact on ETFs in the future. In addition to improving overall regulation, the rule aims to simplify the process of bringing new ETFs to market. “As the ETF industry continues to grow in size and importance, particularly to Main Street investors, it is important to have a consistent, transparent, and efficient regulatory framework that eliminates regulatory hurdles while maintaining appropriate investor protections,” said SEC Chairman Jay Clayton.

Considered one of the biggest changes to ETF regulation since ETFs were first introduced in 1993, the “ETF Rule” aims to improve transparency and remove the need for length approvals. This could ultimately save companies up to six months of reviews and $25,000 for each new ETF.

The Rise of Cannabis ETFs

Another key theme emerging this year has been the meteoric rise of cannabis ETFs. This includes the launch of five new ETF products such as the AdvisorShares Pure Cannabis ETF, which debuted in April. It’s worth noting however that fast growth doesn’t necessarily equal good performance. In fact, cannabis ETFs have generally experienced poor performance, though this is likely due to overselling caused by initial excitement.

As these ETFs become more established, performance is expected to improve. And with the cannabis industry continuing to grow in popularity, even more growth is expected over the next year.

Why Blockchain Hasn’t Seen a Boost

While cannabis ETFs have taken off, blockchain ETFs have struggled to find a foothold. Still, there have been modest gains over the past year. Two recently launched blockchain ETFs include the Reality Shares Nasdaq NexGen Economy (BLCN) ETF and the Amplify Transformational Data Sharing (BLOK) ETF. Together, these collected $240 million worth of investments during their first week, signaling significant interest in this type of product.

Continued ETF Growth

According to Dave Nadig, managing director of ETF.com, increased growth is one of the key trends investors can expect to see over the next year. “I think the core ETF value proposition, which is extremely low-cost beta that’s transparent, tax efficient and easy to trade, isn’t going to go away,” he says. What’s more, he predicts that within the next five years, ETFs are likely to surpass mutual fund assets in the United States. And with increased volatility on the horizon, fixed income and low volatility ETFs will likely continue to attract risk-averse investors.

Over the past year, the ETF market has seen both significant growth and increased regulatory changes. And with the “ETF Rule” simplifying the process of introducing new ETFs, those trends are likely to be even more prominent in 2020. As we look to the year ahead, it’s important to remember that focusing on the big picture can help investors look beyond market swings and make the right decisions for their investing needs.