In this week’s episode of ETF Prime, host Nate Geraci is joined by ETF Trends and ETF Database President Tom Hendrickson to discuss thematic ETFs from a unique perspective. Geraci also discusses the controversial ‘payment for order flow’ practice with Interactive Brokers founder Thomas Peterffy. Later, Chris Sullivan, President of MacMillan Sullivan Communications, provides a behind-the-scenes look at ETF Marketing.
The first is Hendrickson, who discusses the growth of thematic ETFs, one of the hottest market segments in recent years. As he explains, investor engagement with thematic ETFs can change quickly, which is emblematic of a space dominated by innovation and enthusiasm.
Hendrickson details how the ETF theme space’s assets grew from $ 40 billion in 2018, with 27 fund launches, to $ 50 billion in 2019. However, the explosive adoption of these types of ETFs has had take place in 2020. Almost $ 73 billion in net inflows were recorded. the ETF thematic complex. Today, there are around 209 thematic ETFs, with a total of around $ 160 billion in assets under management.
Popular themes include technology concepts such as robotics and AI, fintech, genomics, internet stocks, space, advanced mobility, low carbon products, and digital economies. These are emerging areas of the market to which the investment community can easily gain diversified exposure through the use of the ETF wrapper.
Hendrickson also lists the five ETFs that have had the most exposure to engagement, based on year-over-year growth, including the Invesco WilderHill Clean Energy ETF (PBW), the VanEck Vector Rare Earth Strategic Metals ETF (REMX), and the Invesco Solar ETF (TAN).
Payment for order flow
The following section introduced Thomas Peterffy, Founder and President of Interactive Brokers, who addressed the topic of “payment for order flow”. This term refers to when a broker routes transactions from clients to certain companies and, in return, brokers are paid for the flow. Concerns have arisen as to why companies like Citadel would do it and if it is hurting investors.
As the major brokerages went commission-free in 2019, many began to wonder how these firms made money if they didn’t charge for transactions.
Many ways, explains Peterffy, include paying investors a minimum amount for the money in their brokerage accounts while brokers invest it at a higher rate. They can also lend their clients’ securities to short sellers and cross-sell other proprietary products and services, among other options. Paying for order flows started to gain attention during the GameStop drama, as investors began to wonder if there was a conflict of interest.
Finally, MacMillan Sullivan Communications President Chris Sullivan joins Geraci to discuss his role in public relations and marketing aspects of the ETF industry. Competition is fierce in the ETF industry, and Sullivan details some of the methods and strategies for bringing attention to different funds.
Listen to the full ETF Prime episode with Tom Hendrickson:
For more ETF Prime podcast episodes, visit our ETF Prime channel.