From Our Briefings Newsletter

Published on06 AUG 2018

Exchange-traded funds (ETFs) are expanding at a rapid clip but still only make up a fraction of investable assets. Today, changing regulations and the growth of digital advisory models, among other factors, could accelerate that growth. We sat down with Mike Crinieri, global head of ETFs in Goldman Sachs Asset Management, who described the evolving landscape.

The article below is from our BRIEFINGS newsletter of 06 August 2018:

Briefly . . . on the Evolving Landscape for ETFs  

The Securities and Exchange Commission recently proposed rules that could streamline the process of bringing new ETFs to market. What is your interpretation of the regulatory backdrop for ETFs?

Mike Crinieri:
We see the SEC’s proposed rule as a significant – potentially seminal – event. Under current rules, companies that want to issue an ETF must get permission or “exemptive relief” from the SEC. The proposed rule would drop that requirement which could make it easier for newer entrants to get into the markets while giving existing players more flexibility to create customized ETF products. Meanwhile, the MiFID II regulations which went into effect in Europe this year have also been a boon to ETF providers. Among other things, MiFID II increased the reporting requirements for all trades, with the goal of bringing greater transparency, safety and efficiency on financial instruments. That, in turn, has spurred investor interest in ETFs given the vehicles’ transparent structures.

Mike, what are you seeing in terms of investor interest in ETFs?

We continue to see record investor flows into ETFs from a broad set of investors, ranging from individual investors to the largest institutions. Last year, in fact, was a record year with nearly $500 billion of new assets going into more than 2,100 ETFs, according to Bloomberg. Investors are gravitating to ETFs for a variety of reasons. An industrywide move toward passive vehicles is one factor, as are ETFs’ low costs. In addition, the growing popularity of digital advisory platforms – known as “robo advisors” – is another growth factor given that many of the platforms’ portfolios are made up of ETFs.

With hundreds of billions of dollars flowing into ETFs, should we be concerned about a bubble?

It’s important to keep in mind that despite the strong growth in assets, ETFs make up a relatively small part of the equity and fixed income markets. According to Goldman Sachs Research, ETFs own just 6% the US equity market based on market capitalization and only 1% of the outstanding value of the US fixed income market, while households, mutual funds and institutional investors own the rest. Fixed income, in particular, is where we’ve seen significant growth given demographic trends as aging baby boomers increasingly turn to fixed income. In fact, we expect to see investors use ETFs to access other hard-to-access areas such as hedge funds or cryptocurrencies, and even thematic trends.  


Exchange-Traded Funds are subject to risks similar to those of stocks. Investment returns may fluctuate and are subject to market volatility, so that an investor’s shares, when redeemed, or sold, may be worth more or less than their original cost. ETFs may yield investment results that, before expenses, generally correspond to the price and yield of a particular index. There is no assurance that the price and yield performance of the index can be fully matched.