SS&C Releases White Paper on the Rise of ETFs

Earlier this year, SS&C released a white paper titled, “Rise of the ETFs” which chronicles the growth of the ETF product since the first fund was launched in 1993. The paper highlights the advantages of the ETF wrapper including intraday trading, tax efficiencies, and lower fees all of which are leading to increased investor flows and increased mutual fund to ETF conversions. According to the paper, “[i]n 2022, there was a $1.5 trillion dollar gap in the flow of money from the traditional ‘old school investment vehicles’ into ETFs.” The paper notes that retail investors prefer ETFs because of “tradability” and the tax friendly structure, while institutional investors find the ETF better for hedging against or following broad movements in the stock market. Even with its rise in popularity, some mutual fund to ETF conversions are not as successful, in fact according to Morningstar data, around 40% of converted ETFs recorded net outflows post-wrapper change. According to the white paper, when analyzing whether to convert to an ETF wrapper, the conversions “need to be looked at holistically to determine if the benefits of the ETF wrapper make sense for the firm and investor in the long run.”

Additionally, the paper covers whether the rise of ETFs means the death of mutual funds more generally. According to the author, defined contribution retirement plans are designed to house long-term investments like mutual funds and the tax advantage of the ETF does not matter in a tax-advantaged retirement account. Furthermore, trading ETFs may incur commission fees, which may outweigh their lower expense ratios. The paper does note that active ETFs will continue to rise in popularity and inflows, while other types of ETFs such as buffered and single-stock ETFs will continue to play a role in certain portfolios.

Click here to read the SS&C white paper “Rise of the ETFs.”