CONTRIBUTORS
David Mann
Global Head of ETF Product and Capital Markets
Franklin Templeton
Thanks to my daughterโs impeccable planning plus a little bit of luck, we were fortunate enough to see Taylor Swiftโs incredible concert at Leviโs Stadium in Santa Clara, California. Exuding non-stop energy, Swift performed 45 songs over 3.5 hours to an ecstatic crowd that belted out every word right along with her. There is a reason they renamed the city โSwiftie Clara!โ I am a little worried about recency bias but feel comfortable declaring this is the best concert I have ever attended. My daughter is still buzzing.
I was listening (and singing!) song after familiar song across all the โerasโ of Swiftโs long and successful musical career. And since my time in the ETF industry aligns nearly identically with Swiftโs time as a performing artist, I wondered how else the products of our careers may be aligned. As a fan of both ETFs and Taylor Swift, I thought itโd be fun to reimagine her lyrics as reflections over the ever-expanding ETF industry. Hereโs how Iโd imagine she could have drawn inspiration from our industry based on some of my favorite songs from the concert:
Love Story (2008) โ โItโs a love story. Baby, just say โYesโ.โ
In the early 2000s, ETFs were still a bit of a novelty. Between 2000-2006, ETFs in the United States averaged around $40 billion in inflows each year.1 That changed in 2007 and 2008 when investor interest exploded, and the average inflows jumped to more than $150 billion.2 The ETF โLove Storyโ had officially begun!
I Knew You Were Trouble (2012) โ โ โCause I knew you were trouble when you walked in/So shame on me nowโฆโ
ETF assets and inflows continued to grow as more and more investors began to appreciate the ETF vehicle. However, there was potential early โtroubleโ in the US market structure, causing irregular trading during times of heightened market volatility. These worries were sadly justified during the original Flash Crash of 2010, which negatively impacted ETFs along with single stocks.
Shake It Off (2014) โ โ โCause the players gonna play, play, play, play, play/And the haters gonna hate, hate, hate, hate, hate/ Baby, Iโm just gonna shake, shake, shake, shake, shake/I shake it off, I shake it offโฆโ
After the Flash Crash, the ETF wrapper was under attack. Detractors were screaming that the ETF arbitrage concept was not bulletproof and trading efficiency was more inconsistent than expected. There may always be both lovers and haters of the ETF wrapper. From an ETF capital markets perspective, much of the context in my early writings attempted to convince those haters that their concerns were unjustified.
โฆReady For It? (2017) โ โI know Iโm gonna be with you, so I take my time/Are you ready for it?โ
Perhaps this title anticipated that others would share my excitement for active ETFs! Active funds have gained in popularity and ETF issuers would have been wise to be โready for it,โ even before the passage of the โETF Ruleโ that codified no operational differences between active and index funds. Itโs fun to think these lyrics also presciently call for patienceโETF issuers needed to take their time as track records were built and investors became more comfortable getting active exposure within the ETF vehicle. Thus far in 2023, 23% of the almost $300 billion of ETF inflows in the United States have come from active ETFs.3
Cruel Summer (2019) โ โItโs cool, thatโs what I tell โem/No rules in breakable heaven/But ooh, whoa oh/ Itโs a cruel summer/With you.โ
The ETF industry tends to slow down in summertime. Last year, US ETFs averaged around $50 billion a month of inflows but only $40 billion in June, July, and August.4 Thus far in 2023, the industry has averaged $37 billion in inflows a month, but paralleling the success of Swiftโs โErasโ tour, June saw $65 billion in inflows while July saw $53 billion. Maybe her tour has made summer a little less cruel for ETFs.
Karma (2022) โ โKarma is a god (Ah)/Uh-huh, mm/Karmaโs a relaxing thoughtโฆโ
Are we in charge of our own destinies? Our Franklin Templeton ETF business has been making strides for seven years. Maybe there is a little bit of karma involved with the recent success of the Franklin ETF business; in the United States, we have now seen over $2.5 billion of net inflows in 2023 and our assets are closing in on $13.5 billion.5 While one might think we can relax now, I will continue to champion the merits of ETFsโand Taylor Swiftโs music!
Endnotes
- Source: Morningstar.
- Ibid.
- Source: Bloomberg as of July 31, 2023.
- Ibid.
- Ibid.
WHAT ARE THE RISKS?
All investments involve risks, including possible loss of principal. The value of investments can go down as well as up, and investors may not get back the full amount invested. Generally, those offering potential for higher returns are accompanied by a higher degree of risk.
For actively managed ETFs, there is no guarantee that the managerโs investment decisions will produce the desired results.
ETFs trade like stocks, fluctuate in market value and may trade above or below the ETFโs net asset value. Brokerage commissions and ETF expenses will reduce returns. ETF shares may be bought or sold throughout the day at their market price on the exchange on which they are listed. However, there can be no guarantee that an active trading market for ETF shares will be developed or maintained or that their listing will continue or remain unchanged. While the shares of ETFs are tradable on secondary markets, they may not readily trade in all market conditions and may trade at significant discounts in periods of market stress.