In this conversation, Pierre Daillie interviews Elisabeth Kashner, Director of Global Funds Research, FactSet, about the trends and challenges in the ETF market. They discuss the slow pace of ETF flows in 2024, the impact of the Fed's rate cuts, and the attractiveness of cash investments. They also explore the rise of actively managed equity ETFs and the competition among asset managers to offer low-cost products. The conversation highlights the importance of providing exceptional value and solving the profitability challenge in the ETF industry. The asset management industry is experiencing a shift towards lower fees and increased efficiency, driven by the rise of ETFs. While some ETF issuers have raised their management expense ratios (MERs), it is often due to operational concerns rather than a desire to make more money. The industry is becoming more commoditized, allowing investors to focus on making the right asset allocation decisions. The ETF industry continues to grow, with inflows increasing every year. However, with over 3,500 ETFs available, investors need to do their homework and understand the products they are investing in.

Takeaways

• ETF flows in 2024 have been slow compared to previous years, with investors gravitating towards cash investments due to their attractive yields.

• The rise of actively managed equity ETFs has led to increased competition among asset managers, with a few firms attracting the majority of flows.

• Asset managers face the challenge of offering exceptional value and solving the profitability issue in a highly competitive market.

• The barriers to entry in the ETF industry are low, but the barriers to success are high, requiring efficiency, scale, and effective capital markets management.

• The asset management industry is shifting towards lower fees and increased efficiency

• ETF issuers have raised MERs due to operational concerns, not to make more money

• Investors have a wide range of ETF options, but need to do their homework and understand the products

• The industry is becoming more commoditized, allowing investors to focus on asset allocation decisions

• Investors should seek the advice of a knowledgeable advisor to navigate the market

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