Q&A with BNY Mellon Asset Servicing
Published
Global Head of ETFs, Bank of New York Mellon Asset Servicing
This week we sit down with Benjamin Slavin at BNY Mellon to discuss how the active ETF market is evolving.
Bank of New York Mellon (BNYM) is a global ETF service provider that shares many clients with the NYSE. What are the key questions new entrants and clients are asking today?
2021 was a record year for new entrants to the ETF market, and this trend has continued into 2022! New issuers, alongside existing issuers, are seeking the optimal approach to bringing new products to market and how best to market and distribute. Clients are asking:
- What is the best approach to enter the ETF market? Build, buy, or convert.
- What are the most important positions to hire?
- How do we adapt existing marketing / distribution resources for ETFs?
- How do mutual fund to ETF conversions work? How do I determine what is a good fund candidate for a conversion?
- What is my break-even to earn a profit on a new ETF?
When firms are looking to enter the ETF market, particularly as active managers, what are some of the overlooked questions that your team addresses?
ETF Rule 6c-11 implemented in 2019 has made it easier to launch fully-transparent actively managed ETFs. The rule has lowered the barrier to entry for new products, making it both faster and cheaper to bring products to market. The majority of products launched on the BNY Mellon ETF Services platform since 2020 have been actively managed, which contrasts with prior years when passive strategies were the dominant investment approach.
When launching a new ETF franchise, it is important for clients to think about the platforms in support of product distribution. Shelf space at platforms can be tough to access; and the requirements for approval have continued to be stringent, driven by an increased supply of new ETFs. Issuers who choose semi-transparent ETFs sometimes overlook the operational nuances of the various structures.
Finally, it is important to clearly understand how to translate investment portfolios from mutual funds (or an SMA) into the ETF wrapper. It is critical to think ahead when determining how a smaller investment portfolio handles a single creation unit size (typically between $1-$5m), and how to best operationally manage a fund with low assets under management until reaching critical mass.
The active ETF market now offers asset managers a lot of choice when considering product design. How has BNY Mellon navigated and prepared for the various structures and paths that are available? What should new entrants consider as they assess entry?
Various active structures offer a wide canvas for portfolio managers and product development teams at ETF issuers. BNY Mellon utilizes proprietary ETF technology to facilitate ETF services. The Bank has made several large investments in the ETF platform to enhance scalability, flexibility, and to handle a wide variety of products – both transparent and semi-transparent.
With such a wide array of options, it is important to ensure an issuer matches the investment strategy with the right structure. For issuers who decide to use the semi / non-transparent approach, there is a further decision on the optimal structure to choose. Each of the six allowed approaches has advantages and operational nuances that need to be carefully considered. Issuers should also consider implications on their investment strategy (e.g. transparency) as well as regulatory implications. Products that do not comply with Rule 6c-11 or the NYSE ETF Generic Listing Rules may require a longer path to market with additional SEC approvals prior to launch.
As a servicing and custody firm, what guidance would you offer sponsors as they consider expanding their product offerings to include actively managed strategies?
Custody banks play a key role in providing the infrastructure to power ETF platforms for sponsors and liquidity participants around the world but do not do it alone. Choosing the right service provider that can grow, scale, and service an ETF business now and in the future is a critical decision to make up front. A few things to consider:
- Leveraging the NYSE - which BNY Mellon works with closely - can help set the stage for launch timeframes by determining listing requirements and providing support on a wide range of topics from markets to PR. ETFs require a unique set of services, technology, and automation, that are different than mutual funds and other structures. While many sponsors approach legal counsel and their asset servicing partners first, it is equally important to connect with the broader ecosystem.
- In addition to working with an ETF servicing agent and exchange venue, we also recommend clients engage with multiple liquidity providers upfront; ensuring their product development team gets feedback on the investment strategy while also establishing key relationships for market making once the ETFs are listed.
Active ETF Stat Pack
| Firms | |||
|---|---|---|---|
| # of Issuers | 175 | ||
| # of New Issuers 2022 | 21 | ||
| Products | Assets | ||
| # of ETFs | 828 | AUM ($B) | $300.69 |
| # of New Launches 2022 | 84 | 3 Yr AUM CAGR | 158% |
| Avg. ER | 0.47% | 5 Yr AUM CAGR | 56% |
| Cash Flow | Trading | ||
| YTD Cash Flow ($B) | $32.20 | YTD ADV (Shares) | 123,800,124 |
| 3 Yr Cash Flow | $202.10 | YTD ADV ($) | $5.12 B |
| 5 Yr Cash Flow | $246.00 | YTD Avg. Spread (bps)* | 32.91 |
Source: Factset & NYSE Internal Database and Consolidated Tape Statistics as of 2/14/2022
*Simple average
Active, Semi-Transparent Update
| Ticker | Inception | Name | AUM | YTD Flows | 30 Day Median Spread (bps) | ADV (shares) | Structure | LMM | Expense Ratio | Listing Venue |
|---|---|---|---|---|---|---|---|---|---|---|
| EQOP | 9/17/20 | Natixis U.S. Equity Opportunities ETF | $8,385,650 | $623,987 | 15.22 | 377 | NYSE AMS | Citadel | 0.90% | NYSE |
| VNSE | 9/17/20 | Natixis Vaughan Nelson Select ETF | $5,852,989 | $2,157,116 | 14.96 | 830 | NYSE AMS | Citadel | 0.80% | NYSE |
| VNMC | 9/17/20 | Natixis Vaughan Nelson Mid Cap ETF | $7,237,532 | $(288,632) | 16.36 | 721 | NYSE AMS | Citadel | 0.85% | NYSE |
| ESGA | 7/15/20 | American Century Sustainable Equity ETF | $127,728,795 | $(4,899,582) | 14.72 | 16,502 | NYSE AMS | Citadel | 0.39% | NYSE |
| MID | 7/15/20 | American Century Mid Cap Growth Impact ETF | $21,331,750 | $4,409,573 | 15.11 | 4,120 | NYSE AMS | Citadel | 0.45% | NYSE |
| ESGY | 7/1/21 | American Century Sustainable Growth ETF | $6,021,180 | $803,527 | 5.3 | 578 | NYSE AMS | Citadel | 0.39% | NYSE |
| NDVG | 8/5/21 | Nuveen Dividend Growth ETF | $6,308,016 | $522,388 | 7.15 | 1,053 | NYSE AMS | Citadel | 0.64% | NYSE |
| NSCS | 8/5/21 | Nuveen Small Cap Select ETF | $4,966,700 | $(209,054) | 10.45 | 425 | NYSE AMS | Citadel | 0.85% | NYSE |
| NWLG | 8/5/21 | Nuveen Winslow Large-Cap Growth ESG ETF | $4,551,150 | $220,954 | 7.4 | 5,031 | NYSE AMS | Citadel | 0.64% | NYSE |
| NUGO | 9/28/21 | Nuveen Growth Opportunities ETF | $2,375,435,540 | $26,032,157 | 7.32 | 162,958 | NYSE AMS | Citadel | 0.55% | NYSE |
| SAEF | 11/16/21 | Schwab Ariel ESG ETF | $10,068,300 | $4,133,100 | 26.87 | 4,754 | NYSE AMS | Flow Traders | 0.59% | NYSE |
| FDG | 4/2/20 | American Century Focused Dynamic Growth ETF | $122,804,227 | $(17,859,205) | 15.72 | 25,071 | ActiveShares | Citadel | 0.45% | Cboe BZX |
| FLV | 4/2/20 | American Century Focused Large Cap Value ETF | $216,936,923 | $(9,211,562) | 14.78 | 10,736 | ActiveShares | Citadel | 0.42% | Cboe BZX |
| CFCV | 5/28/20 | ClearBridge Focus Value ETF | $3,471,706 | $339,653 | 43.32 | 325 | ActiveShares | GTS | 0.50% | Cboe BZX |
| FBCG | 6/4/20 | Fidelity Blue Chip Growth ETF | $320,477,535 | $(21,305,865) | 23.82 | 155,397 | Fidelity Proxy | GTS | 0.59% | Cboe BZX |
| FBCV | 6/4/20 | Fidelity Blue Chip Value ETF | $107,627,910 | $11,043,015 | 25.46 | 30,411 | Fidelity Proxy | GTS | 0.59% | Cboe BZX |
| FMIL | 6/4/20 | Fidelity New Millennium ETF | $57,960,975 | $(750,373) | 26.35 | 12,795 | Fidelity Proxy | GTS | 0.59% | Cboe BZX |
| FGRO | 2/4/21 | Fidelity Growth Opportunities ETF | $49,160,755 | $13,971,640 | 9.41 | 141,351 | Fidelity Proxy | Citadel | 0.59% | Cboe BZX |
| FMAG | 2/4/21 | Fidelity Magellan ETF | $41,391,453 | $166,348 | 15.14 | 21,533 | Fidelity Proxy | RBC | 0.59% | Cboe BZX |
| FPRO | 2/4/21 | Fidelity Real Estate Investment ETF | $19,900,738 | $784,373 | 7.85 | 8,077 | Fidelity Proxy | Citadel | 0.59% | Cboe BZX |
| FSMO | 2/4/21 | Fidelity Small/Mid-Cap Opportunities ETF | $26,299,660 | $(113,630) | 15.3 | 9,159 | Fidelity Proxy | RBC | 0.59% | Cboe BZX |
| FSST | 6/17/21 | Fidelity Sustainability U.S. Equity ETF | $5,404,980 | $482,085 | 15.29 | 1,271 | Fidelity Proxy | RBC | 0.59% | NYSE |
| FDWM | 6/17/21 | Fidelity Women's Leadership ETF | $2,458,170 | $235 | 17.55 | 862 | Fidelity Proxy | RBC | 0.59% | NYSE |
| TCHP | 8/5/20 | T. Rowe Price Blue Chip Growth ETF | $211,547,072 | $40,032,852 | 11.45 | 151,100 | T Rowe Proxy | Virtu | 0.57% | NYSE |
| TDVG | 8/5/20 | T. Rowe Price Dividend Growth ETF | $127,983,640 | $21,253,072 | 11.23 | 26,396 | T Rowe Proxy | RBC | 0.50% | NYSE |
| TEQI | 8/5/20 | T. Rowe Price Equity Income ETF | $85,036,948 | $32,883,986 | 7.89 | 21,021 | T Rowe Proxy | Virtu | 0.54% | NYSE |
| TGRW | 8/5/20 | T. Rowe Price Growth Stock ETF | $36,373,877 | $4,649,480 | 13.05 | 14,390 | T Rowe Proxy | RBC | 0.52% | NYSE |
| TSPA | 6/8/21 | T. Rowe Price U.S. Equity Research ETF | $20,508,202 | $1,732,119 | 11.99 | 2,310 | T Rowe Proxy | RBC | 0.52% | NYSE |
| IVDG | 12/22/20 | Invesco Focused Discovery Growth ETF | $766,730 | $(116,340) | 12.32 | 396 | Invesco Model | Citadel | 0.59% | Cboe BZX |
| IVSG | 12/22/20 | Invesco Select Growth ETF | $1,026,510 | $- | 9.92 | 405 | Invesco Model | Citadel | 0.48% | Cboe BZX |
| IVLC | 12/22/20 | Invesco US Large Cap Core ESG ETF | $5,783,532 | $101,840 | 14.92 | 3,063 | Fidelity Proxy | Citadel | 0.48% | Cboe BZX |
| IVRA | 12/22/20 | Invesco Real Assets ESG ETF | $3,266,014 | $1,085,240 | 32.24 | 1,801 | Fidelity Proxy | Citadel | 0.59% | Cboe BZX |
| LOPP | 2/1/21 | Gabelli Love Our Planet & People ETF | $12,171,660 | $3,319,190 | 62.27 | 1,476 | ActiveShares | GTS | 0.90% | NYSE |
| GGRW | 2/16/21 | Gabelli Growth Innovators ETF | $2,525,880 | $- | 44.04 | 754 | ActiveShares | GTS | 0.90% | NYSE |
| GAST | 1/5/22 | Gabelli Asset ETF | $4,152,750 | $244,380 | 46.89 | 168 | ActiveShares | GTS | 0.90% | NYSE |
| FRTY | 3/1/21 | Alger Mid Cap 40 ETF | $26,560,000 | $778,250 | 39.62 | 26,962 | ActiveShares | Virtu | 0.60% | NYSE |
| ATFV | 5/4/21 | Alger 35 ETF | $9,175,625 | $(100,250) | 38.74 | 3,176 | ActiveShares | Virtu | 0.55% | NYSE |
| REIT | 2/26/21 | ALPS Active REIT ETF | $17,786,303 | $(5,590,650) | 30.58 | 7,736 | Blue Tractor | GTS | 0.68% | NASDAQ |
| STNC | 3/16/21 | Stance Equity ESG Large Cap Core ETF | $37,399,473 | $4,518,491 | 31.79 | 2,759 | Blue Tractor | GTS | 0.85% | NYSE |
| PFUT | 5/26/21 | Putnam Sustainable Future ETF | $6,283,318 | $545,436 | 33.13 | 1,881 | Fidelity Proxy | Virtu | 0.64% | NYSE |
| PLDR | 5/26/21 | Putnam Sustainable Leaders ETF | $5,900,836 | $6,663 | 15.65 | 227 | Fidelity Proxy | RBC | 0.59% | NYSE |
| PGRO | 5/26/21 | Putnam Focused Large Cap Growth ETF | $7,356,088 | $53,757 | 14.29 | 1,646 | Fidelity Proxy | RBC | 0.55% | NYSE |
| PVAL | 5/26/21 | Putnam Focused Large Cap Value ETF | $26,340,292 | $9,684,148 | 32.28 | 9,193 | Fidelity Proxy | Virtu | 0.55% | NYSE |
| HFGO | 11/9/21 | Hartford Large Cap Growth ETF | $60,560,798 | $65,778,714 | 25.52 | 241,266 | Fidelity Proxy | Citadel | 0.59% | Cboe BZX |
| SEMI | 3/30/22 | Columbia Seligman Semiconductor and Technology ETF | $5,387,704 | $1,315,050 | 34.34 | 7,212 | Fidelity Proxy | Virtu | 0.75% | NYSE |
| DCPE | 4/5/22 | DoubleLine Shiller CAPE U.S. Equities ETF | $22,698,468 | $- | 22.345 | 88,068 | ActiveShares | Citadel | 0.65% | NYSE |
| GABF | 5/11/22 | Gabelli Financial Services Opportunities ETF | $4,932,200 | $- | 96.55 | 875 | ActiveShares | GTS | 0.00% | NYSE |
| Total/Average | $4,199,727,383 | $126,133,911 | 20.58 | 891,197 | 0.61% |
Source: FactSet & NYSE Internal Database and Consolidated Tape Statistics as of 5/13/2022
*Simple average
February & March MTD Active ETF Launches
| Ticker | Name | Issuer | Launch Date | Asset Class | AUM |
|---|---|---|---|---|---|
| MBNE | SPDR Nuveen Municipal Bond ESG ETF | State Street | 4/5/22 | Fixed Income | $32,159,636 |
| DCPE | DoubleLine Shiller CAPE U.S. Equities ETF | Doubleline ETF Adviser LP | 4/5/22 | Equity | $22,698,468 |
| NBDS | Neuberger Berman Disrupters ETF | Neuberger Berman | 4/7/22 | Equity | $3,825,900 |
| NBCT | Neuberger Berman Carbon Transition Infrastructure ETF | Neuberger Berman | 4/7/22 | Equity | $4,332,940 |
| NBCC | Neuberger Berman Next Generation Connected Consumer ETF | Neuberger Berman | 4/7/22 | Equity | $4,031,800 |
| JCPI | JPMorgan Inflation Managed Bond ETF | JPMorgan Chase | 4/11/22 | Fixed Income | $1,089,888,796 |
| WEED | Roundhill Cannabis ETF | Roundhill Investments | 4/20/22 | Equity | $1,723,500 |
| FSBD | Fidelity Sustainable Core Plus Bond ETF | Fidelity | 4/21/22 | Fixed Income | $12,374,125 |
| FSLD | Fidelity Sustainable Low Duration Bond ETF | Fidelity | 4/21/22 | Fixed Income | $4,996,710 |
| FMCX | Northern Lights Fund Trust IV - FMC Excelsior Focus Equity ETF | First Manhattan | 4/25/22 | Equity | $71,230,600 |
| KSET | KraneShares Global Carbon Offset Strategy ETF | KraneShares | 4/27/22 | Commodities | $9,585,064 |
| UAV | AdvisorShares Drone Technology ETF | AdvisorShares | 4/27/22 | Equity | $583,918 |
| CRYP | AdvisorShares Managed Bitcoin Strategy ETF | AdvisorShares | 4/27/22 | Asset Allocation | $993,500 |
| DFEM | Dimensional Emerging Markets Core Equity 2 ETF | Dimensional Holdings | 4/27/22 | Equity | $110,659,150 |
| DEHP | Dimensional Emerging Markets High Profitability ETF | Dimensional Holdings | 4/27/22 | Equity | $10,675,305 |
| DFEV | Dimensional Emerging Markets Value ETF | Dimensional Holdings | 4/27/22 | Equity | $75,252,160 |
| EVMT | Invesco Electric Vehicle Metals Commodity Strategy No K-1 ETF | Invesco | 4/27/22 | Commodities | $24,075,027 |
| JEPQ | J.P. Morgan Nasdaq Equity Premium Income ETF | JPMorgan Chase | 5/4/22 | Equity | $26,835,250 |
| JMEE | JPMorgan Market Expansion Enhanced Equity ETF | JPMorgan Chase | 5/9/22 | Equity | $878,627,178 |
| DFUV | Dimensional US Marketwide Value ETF | Dimensional Holdings | 5/9/22 | Equity | $7,805,403,800 |
| GABF | Gabelli Financial Services Opportunities ETF | GAMCO Investors, Inc. | 5/11/22 | Equity | $4,932,200 |
| Total - 21 New ETFs | $10,194,885,027 |
Source: Factset as of 5/13/2022
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