NYSE Active ETF Updates

Q&A with BNY Mellon

This week we sit down with Matt Camuso at BNY Investments to discuss the company’s entry and growth in the active ETF market.

BNY is a leading investment manager, with ~$2.0 trillion in assets under management across investment vehicles as of March 31, 2024. The firm entered the active ETF market in August 2021 with the launch of NYSE Arca-listed, BNY Mellon Ultra Short Income ETF (BKUI). Since then, the line-up has grown to include six active ETFs across asset classes. What led to the decision to enter the active ETF market and what is on the horizon for BNY?

As it is in every part of our business, this decision was the result of the evolving needs of our clients and the way they prefer to consume active strategies. We have seen a seismic shift in preference, as you note in these updates, with flows into active ETFs seemingly increasing momentum year on year for the past 5 years. To meet this preference by our clients, we have been hard at work bringing out our leading investment capabilities into the active ETF market, with a focus on differentiation. On the horizon you can expect more of the same as we look to add choice in certain asset classes for active strategies led by our institutional quality active management from our investment firms.

As a global asset manager what benefits and/or nuances come with operating an active ETF product line-up compared to other investment products (i.e., Mutual Funds, CITs, etc.)?

I would say the main benefit is really the operational efficiency that comes with operating an ETF relative to the other products. This is mainly driven by the unique exchange traded nature of ETFs, which brings the opportunity for liquidity to be sourced on the secondary market rather than always needing to be at the fund level. This provides our managers with additional flexibility and limits force selling of securities for active strategy purposes or tax reasons. I would also mention that we have business lines within our enterprise that span the ETF ecosystem, from asset servicing to capital markets and sub-adviser. I believe this gives us a unique perspective on the industry from all our different business lines and helps us to better support our clients.

BNY leverages seven different investment managers to deliver client solutions. How does this approach differentiate the firm and what, if any, ETF-specific challenges come from this approach?

I think this is one of our key differentiators because each one of our investment firms has a distinct and deep specialist investment expertise. BNY brings international distribution channels, brand equity, operational infrastructure, support, and influence. In addition, each of our investment firms brings a unique investment philosophy, process, approach, and culture to BNY.

What are the key considerations that investors should contemplate when considering actively managed ETFs?

We encourage investors to focus on three things with their issuer when evaluating an active ETF:

Lastly, what guidance would you provide sponsors as they consider expanding their product offerings to include actively managed ETFs?

Make establishing a relationship with the exchanges and liquidity providers one of your first steps. These are, after all, ‘exchange-traded’ funds so this component is new for most, but critically important to help your investors have a good experience. This relationship is not just for when you launch the ETF either, it starts in the product development stages by working with liquidity providers to understand how the product you are considering might trade. I have spent the majority of my career in the ETF industry and am a true believer in the product, but even I will admit not everything belongs in an ETF.

Investors should consider the investment objectives, risks, charges and expenses of a fund carefully before investing. To obtain a prospectus, or a summary prospectus, if available, that contains this and other information about a fund, contact your financial professional or visit im.bnymellon.com/etf. Please read the prospectus carefully before investing.

ETF shares are listed on an exchange, and shares are generally purchased and sold in the secondary market at market price. At times, the market price may be at a premium or discount to the ETF's per share NAV. In addition, ETFs are subject to the risk that an active trading market for an ETF's shares may not develop or be maintained. Buying or selling ETF shares on an exchange may require the payment of brokerage commissions.

The ETF funds will issue (or redeem) fund shares to certain institutional investors known as “Authorized Participants” (typically market makers or other broker-dealers) only in large blocks of fund shares known as “Creation Units.” BNY Mellon Securities Corporation ("BNYMSC"), a subsidiary of BNY, serves as distributor of the fund. BNYMSC does not distribute fund shares in less than Creation Units, nor does it maintain a secondary market in fund shares. BNYMSC may enter into selected agreements with Authorized Participants for the sale of Creation Units of fund shares.

ETFs trade like stocks, are subject to investment risk, including possible loss of principal. The risks of investing in the ETF typically reflect the risks associated with the types of instruments in which the ETF invests. Diversification cannot assure a profit or protect against loss.

Bonds are subject to interest rate, credit, liquidity, call and market risks, to varying degrees. Generally, all other factors being equal, bond prices are inversely related to interest-rate changes and rate increases can cause price declines.

ETF tax efficiency can be derived from certain structural elements, including; turnover in passive strategies are typically lower than that in active; and there can be structural tax benefits from in-kind redemptions. When assets are delivered from the ETF via an in-kind transfer, no capital gains are realized. This can allow investors more control over the timing of their tax liabilities based on when they generally sell their position. This information is general in nature and is not intended to constitute tax advice. Please consult your own tax advisor or financial professional for more detailed information on tax issues as they relate to your specific situation.

This material has been distributed for informational purposes only and should not be considered as investment advice or a recommendation of any particular investment, strategy, investment manager or account arrangement, and should not serve as a primary basis for investment decisions. Please consult a legal, tax or financial professional in order to determine whether an investment product or service is appropriate for a particular situation.

Views expressed are those of the author stated and do not reflect views of other managers or the firm overall. Views are current as of the date of this publication and subject to change. No part of this material may be reproduced in any form, or referred to in any other publication, without express written permission.

BNY Investments is one of the world’s leading investment management organizations, encompassing BNY’s affiliated investment management firms and global distribution companies. BNY, BNY Mellon and Bank of New York Mellon are the corporate brands of The Bank of New York Mellon Corporation and may also be used as a generic term to reference the corporation as a whole or its various subsidiaries generally. BNY Mellon ETF Investment Adviser, LLC is the investment adviser for the BNY Mellon ETFs. BNY Mellon Securities Corporation is the distributor of the BNY Mellon ETFs, each are subsidiaries of The Bank of New York Mellon Corporation.

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