Joe Mahoney is Head of US ETF Sales and Harry Whitton is Head of ETF Sales Trading at Old Mission, a global, multi-asset market maker.
What was the highlight of 2021?
From our vantage point, 2021’s huge uptake in ETF flows was the most notable. It was another record year, surpassing 2020 – basically doubling it. While this continued a trend of ETF growth, the degree was what was surprising. Over $800 billion in net inflows to US listed ETFs, and $1 trillion globally. The appetite and need for unique sources of liquidity globally continue to grow. And to support this we added personnel in all areas, particularly trading. We grew our employee base by about 40% this year to keep up with Old Mission adding more trading counterparties, and the growth of new products and issuers.
What surprised you in 2021?
Given the attention to and public/media interest in products like thematic and ESG ETFs, it’s surprising what the actual flows look like. The top 20 names continue to be the traditional ETFs we are accustom to seeing.
What are your expectations for 2022?
We will continue to see actively managed, ESG and thematic product launches.
We expect more issuers to enter the ETF space, including more traditional mutual fund and boutique investment firms. We also expect to see more mutual funds convert their assets over to an ETF structure.
ETFs are increasingly being used by asset managers in their model portfolios. ETFs are low cost, and the ease of trading have made them a very popular way of expressing investment strategies.
Innovation in the space is ongoing as the bigger managers (including insurance companies and pensions) continue to move to passive, low cost strategies. Along with ESG, we will continue to see a trend of funds launched as “solution ETFs” that hold options and other derivative instruments, provide exposure to new asset classes and help to further diversify portfolios.
The biggest reasons for the shift continue to hold true – liquidity, and the need to hit asset allocation targets (strategic and tactical). That said, the methodologies are constantly evolving, and in 2022 we expect a continued increase in the use of RFQ platforms like Bloomberg and Tradeweb. We continue to hear from clients that the ability to quote multiple sources of liquidity at once to seek best execution, such as from firms like Old Mission and others, brings in operational efficiencies that just a few years ago they did not have.
We also expect to see another growth trend continue – larger trade sizes. As ETF usage grows and the ability to transfer risk becomes more efficient via the RFQ protocol, trade sizes being placed through these platforms are continuing to increase. Our clients are thinking about how to manage execution at scale, and we work continuously with both ETF issuers and users to help maximize best execution.