The ETF Show - What's Driving Inflows & Preferred Securities

05 mins 12 secs

Please login to access your playlists.
Share a link to this video

Jonathan Forsgren: Welcome to today's episode of the ETF Show. I'm here with Douglas Yones, Head of Exchange Traded Products at the New York Stock Exchange.  It was a particularly bad year in 2022 for equities and bonds, but ETFs managed to have an inflow. Why is that? And do you expect that trend to continue into 2023?

Doug Yones: Yeah. There's a couple really unique and interesting stats that happened last year. Very tough capital markets. We all felt it. We all watched it. But if we look at ETFs, they're one of the pockets of light. We had over 400 ETFs launched. Net cash flow was very positive in ETFs. In fact, actively managed ETFs, about 70% of all actively managed ETFs had positive cashflow last year. Unheard of across the mutual fund industry. Why? What's happening? It's the ETF structure. First and foremost, they tend to be much less cost, again, saving us all money. We appreciate that. They tend to be much more tax efficient. When markets are tough, we care a lot more about tax and tax performance. So, that happens. The wrapper is just easier to access. Asset managers are wrapping up their strategies in ETFs. What was happening last year? A lot of people, including me, were worried about tax, tax strategies. There was tax loss harvesting. We're leaving mutual funds and locking in your capital loss and buying ETF's, alternative structures, giving you about the same investment strategies, sometimes access to new investment strategies, but you're doing it in what tends to be what is a lower cost vehicle, much more tax efficient. So, we're just seeing that money flow year over year. And last year was no exception.

Jonathan Forsgren: And hopefully we end 2023 in the green end, so there'll be less tax loss harvesting. What will be the driver this year into ETF?

Doug Yones: Yeah. We're seeing a couple key trends. First and foremost, I mentioned active management, more and more active managers coming to the market, more and more people looking for active strategies in an ETF wrapper. It's just the trend. My dad's retired. He calls me every day. "I want to own more ETFs." People want to own ETFs. So, it's just the trend. We're going to see a lot of new strategies coming to ETFs.  Second is straight up conversions. We're seeing mutual funds convert straight to ETFs, about 20 billion dollars last year converted right from mutual funds to ETFs. SMAs, a lot of RIAs out there, they're converting. So, the second is just flat out conversions. And the third is brand new asset managers. People who never add ETFs, they want to be in the space. Over 50 brand new asset managers came here to the New York Stock Exchange, and said, "Help me." We did. It's a lot of what we do every day, me and my team. And we helped 50 brand new asset managers come to the space. That's not going to slow down. We plan on helping a lot of new people launch their very first ETF in 2023.

Jonathan Forsgren: Well, Douglas, thank you so much for joining us this morning.

Doug Yones: Thanks for having me. It's always great to be back on the floor with you.

Jonathan Forsgren: PIMCO just launched a Preferred Securities ETF. Joining me today to discuss that latest offering is Philippe Bodereau, Portfolio Manager at PIMCO.  Philippe, thank you for joining us today.

Philippe Bodereau: Thank you for having me.

Jonathan Forsgren: You are managing this fund. What are some of the advantages of preferred securities at a high level?

Philippe Bodereau: At a high level, we think it's a sector that's heavily dominated by banks, financial institutions, where we've seen a very sharp improvement in credit fundamentals. And we think that there's a space as well, which offers a lot of volatility at times, as we saw last year, and where an active manager can make a big difference.

Jonathan Forsgren: And why package it in an ETF vehicle?

Philippe Bodereau: Well, I think it's mostly ease of access for especially the retail investors. As you know, the liquidity in ETFs is in today. And the other point, as well, is in Preferred in that space. If you go directly to your broker to buy your retail Preferred, the cost of transacting associated with that will be a lot higher than what you'll get through an ETF product.

Jonathan Forsgren: And what type of investor should be considering the Preferred ETF? Who's it geared toward?

Philippe Bodereau: Well, it's pretty heavily geared towards retail, but also asset allocators, I would say. But we see in retail, this is a product that's very efficient from a tax perspective as you get a big tax break on capital gains for Preferred. So, I think that retail clearly should be the lion's share of who we are targeting with this product, going forward.

Jonathan Forsgren: Well, Philippe, thank you for joining us today and sharing your new product.

Philippe Bodereau:Thank you so much for having me.

Jonathan Forsgren: That's it for this edition of the ETF Show. For Asset TV, I'm Jonathan Forsgren. We'll see you next time.



Philippe Bodereau, Portfolio Manager & Head of Credit Research Europe for PIMCO discusses the advantages of preferred securities and PIMCO’s ETF (PRFD). Douglas Yones, Head of Exchange Traded Products at The New York Stock Exchange discusses ETF trends to look out for in 2023 and the advantages of bringing ETF trading back to the most famous trading floor in the world.

NYSE has sponsored this production by Asset TV for illustrative, informational and/or educational purposes only. Without regard to any particular Investor's objectives, financial situation or circumstances. NYSE neither represents nor warrants the accuracy or correctness of any of the statements in the production, which has been independently assembled by Asset TV and with whom sole editorial control rests. NYSE makes no recommendation as to possible benefits from any securities or trading strategies, and this production is not a recommendation, offer, or solicitation of an offer to buy or sell any security, or engage in any trading strategy. Prior to the execution of a purchase or sale of any security, you are advised to consult with your own advisors.