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Hundreds of new ETFs debuted this year even as markets suffered

(Bloomberg) — If a crushing bear market, inflation-fueled volatility and plummeting capital flows were meant to chill the booming U.S. exchange-traded fund industry, issuers never got the message.

Firms launched 422 new ETFs into the market this year as of Wednesday, five more than the number seen at the same time in 2021. The total puts 2022 on track to surpass the record debut of the year. latest, even as the Federal Reserve’s battle against soaring prices stoke turmoil across all asset classes.

Far from cooling the market, volatility has given ETFs a new boost, according to Todd Rosenbluth, head of research at ETF data provider and research consultant VettaFi. Investors are looking for easy and cheap ways to deploy their liquidity, while traders are tapping into diversification vehicles.

“Record inflows for ETFs in 2021 encouraged asset managers to broaden their product portfolios in 2022, and then investors continuing to turn to ETFs during periods of market volatility kept this trend going,” he said. Rosenbluth said in an interview.

Despite explosive growth in ETF launches, there have been 139 closures this year compared to just 72 in 2021, and inflows have fallen 40% from last year’s record.

Some once hot areas of the market are already experiencing a slowdown since the start of this year. Even before the collapse of the FTX exchange, the cryptocurrency ETF pipeline had deflated, with launches shrinking to a trickle and a handful of closing ETPs. Some market watchers expect a series of shutdowns in the coming months.

“We expect shutdowns to resume in 2023,” Bloomberg Intelligence analyst James Seyffart said. “We had record launches in 2021 and near record launches in 2022 and many of these new funds still have minimal assets, which means they are prime candidates for closures as companies look to clean up and streamline their range of ETF offerings.”

However, even after all the shutdowns, investors added $588 billion net to ETFs this year while withdrawing $923 billion from mutual funds, according to HERE data compiled by Bloomberg Intelligence. Meanwhile, transaction volumes for the year have already surpassed 2021’s record numbers.

“The ETF vehicle gives investors control, and then the variety gives them precision,” said Bryon Lake, global head of ETF solutions at JPMorgan Asset Management. “So by having thousands of ETFs, you can put together the perfect group of those to make your specific portfolio.”

ETF debuts this year included the advent of single-stock funds, which allow investors to place leveraged or reverse bets on the daily performance of individual companies like Tesla Inc., Microsoft Corp. and Coinbase Global Inc. Direxion, GraniteShares and others have launched these products. . In total, more than 25 single-stock ETFs hit the market in 2022, although applications to launch such funds targeting foreign companies have been withdrawn by a few issuers.

Other trends also remain as strong as ever – 36 of this year’s launches had ESG attributes, according to data from Bloomberg. Meanwhile, mutual fund-to-ETF conversions have also accelerated in 2022, with Neuberger Berman planning to convert its only U.S. commodity mutual fund to an ETF, following similar moves by JPMorgan, Harbor Capital Management, Guinness Atkinson and others. Over the next decade, more than $1 trillion in mutual fund assets could be converted into ETFs, according to analysis by Bloomberg Intelligence.

“This year we’ve seen a tremendous amount of new filings,” said Sylvia Jablonski, chief investment officer at Defiance ETFs. “As markets evolve, unique new investment opportunities tend to arise.”

The global ETF industry could reach $30 trillion by 2030, according to Lake. Launches are likely to remain robust, with 2023 potentially another banner year, he added.

–With help from Katie Greifeld, Emily Graffeo and Isabelle Lee.

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