Investors choosing ETFs ‘as a preferred way to invest,’ strategist says

BNY Mellon Global Head of ETFs and Asset Servicing Ben Slavin joins Yahoo Finance Live to discuss ETF trends, growth in 2023, investor sentiment, and the outlook for ETFs.

Video transcript

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RACHELLE AKUFFO: Well, investors may be warily watching the Fed's balancing act between its fight against inflation and the threat of recession. Now, the uncertainty leading some analysts to consider ETFs this year for investing.

Here with more, Ben Slavin, BNY Mellon Global Head of ETFs. Good to see you, Ben. Obviously, investors have a lot to take on at the moment. You have, obviously, that Fed uncertainty, this holding pattern that we're in at the moment. What are some of the top questions that clients who are, perhaps, interested in ETFs really have for you right now?

BEN SLAVIN: Well, certainly, investors are watching the Fed but we see ETFs off to a strong start here in 2023. But what the data shows really is, to some degree, a lack of conviction. We've seen it really flow across the board.

And what's interesting to note is with all the investor choice that's available in the ETF market, we see investors looking at actively managed ETFs here in January both of fixed income and equity, as a way to potentially play this market and potentially get some advice.

RACHELLE AKUFFO: And Ben, I want to talk about some of these inflows. We're seeing $610 billion inflows into ETFs last year. You're predicting a record $1 trillion this year. What is going to get it there?

BEN SLAVIN: Well, look, we've seen an acceleration of ETF flow into the market. Investors just simply choosing ETFs as a preferred way to invest really at the expense of mutual funds. And we saw that trend play out last year.

And the gap between outflows coming out of mutual funds into ETFs has grown really to the widest gap ever. And that swing was about $1.5 trillion. This year, again, we're off to a strong start. And we see more issuers coming to market with new products. So it's not just passively-managed product, it's certainly active.

And now that the investor preference, you know, seems to be accelerating, you know, here it being BNY Mellon we're seeing really a large queue of clients lining up either to enter the ETF market or to bring new products to market. And we think that trend will continue here. And I think we could really be within reach of getting to that $1 trillion mark this year.

RACHELLE AKUFFO: So Ben, in terms of standouts, specific ETFs that have offered the best returns over this period, as we get ready to get into more traditional 1/4-point rate hikes from the Fed.

BEN SLAVIN: Well, you know, certainly we've seen investor interest in international equities, which is not something I've been saying much the last couple of years. And if you look at the top of the leaderboard, you see European equities at the top of the leaderboard gathering flow.

And certainly, they've performed well with investor sentiment thinking like dollar may have peaked and certainly valuations seeming attractive. And we started to see a run up there really in the, you know, European equities.

Also fixed income is continuing to catch a bid from investors. But what's interesting about that fixed income flow is we're seeing it really across the board. It's high yield, it's investment grade. It's short duration, it's long duration. And we're even seeing, you know, sort of the mortgage side of the market also pick up investor interest, really, again, trying to position around expectations around what the Fed may or may not do.

RACHELLE AKUFFO: And obviously, a lot of options out there. As you mentioned that you have the equity ETFs fixed income, you also have the dividend ETFs, as well. For people who are trying to position themselves right now, what sort of allocations should they be looking at?

BEN SLAVIN: Well, you know, certainly last year what we have seen was a real sort of wake up call. Those who were invested in a traditional 60/40 type allocation had a really rough go of it, really a historic rough go of it. So what we've seen, really, is a lot of repositioning by investors.

Looking at those allocations, harvesting tax losses in many cases, and using that opportunity to take a look at, you know, other possibilities in their portfolio, specifically to lower cost, reposition tactically, and certainly adjust their fixed income allocations, you know, after the large rout in the bond market last year.

And so, again, we've seen really a historic volume in ETFs that was in place last year. We've seen, again, a strong start here to January and, again, a lot of repositioning. So the advice to investors is really to look at this opportunity to readjust, to reallocate your portfolio.

And take a look at the new options that are out there, whether it be, again, to offer a new slice of your portfolio with some exposure you didn't have before, lower fees, and, again, harvest your taxes, as well, if there are losses inherent in your allocation.

RACHELLE AKUFFO: Certainly at least something there for people who don't want to jump with both feet into the market right now with all this uncertainty. ETFs a great option there. Ben Slavin there, BNY Mellon Global Head of ETFs, thank you for joining me in this morning.