Bank of America’s Merrill Lynch plans to triple its active ETF lineup over the next three to five years, evidence of financial services firms’ efforts to address surging demand for these products.
The wirehouse is aiming to increase its active ETF offerings from 100 to 300, according to a story, which first appeared in the FT’s sister publication Ignites.
The move comes amid a record-breaking year for ETF launches. According to ETFGI data, issuers introduced 1,063 new ETFs in the first seven months of 2024, surpassing the previous record of 988 set over the same period in 2021. Actively managed funds led with 461 new products.
Stephen Patrickakos, head of traditional investments told Ignites that the firm intends to select ETFs for its platform by evaluating their size and performance.
“With a firm our size, if [financial advisers] start engaging and putting money to work, we could become overly concentrated in an ETF, or any structure, very quickly,” he told Ignites.
ETF Surge Continues
Merrill’s expansion plans include adding ETF versions of mutual funds already featured on its platform, as well as new strategies focused on large-cap, small-cap, and growth value stocks. However, Patrickakos noted to Ignites that certain strategies, such as small-cap emerging markets, face capacity constraints in the ETF structure that don’t exist for mutual funds “because ETFs cannot close to new investors like mutual funds can.”
The wirehouse’s move aligns with broader industry trends. Active ETFs listed globally reached a new milestone in July, with assets under management climbing to $974.3 billion, according to ETFGI data. This represents a 32% increase in assets year-to-date, up from $739.9 billion at the end of 2023.
“We’re happy to do that, provided we’re given enough lead time and if it makes more sense to operate a strategy in an active ETF,” Patrickakos said of featuring ETF versions of existing mutual funds, Ignites reported. “We’re very, very supportive.”
Merrill’s plans reflect the growing acceptance of active ETFs among major wirehouses. Nate Geraci, president of The ETF Store, told Ignites that wirehouses have become increasingly comfortable with the ETF wrapper, and issuers are now providing their top portfolio managers and flagship investment strategies via the structure.
Ignites also reported that Merrill is monitoring applications for ETF share classes. More than 20 firms have filed to offer ETFs as share classes for their existing mutual funds, and 72% of advisors say they want access to ETF share classes, according to Ignites Research.
Patrickakos told Ignites that regulatory approval for ETF share classes would allow for “far less complexity” in offering these products.
