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00:00 Speaker A
Investors added $78 billion into US-listed ETFs in the past week, bringing the full year-to-date total to $1.4 trillion. That’s a highest year on record. Trading volume and new ETFs entering the market are also at records for the first time since 2021. Maurits Pot, Tema ETFs Founder and CEO, joins me now for this week’s ETF report brought to you by Invesco QQQ. Maurits, thanks so much for joining us. Set the scene for us. What do you make of this year? Have we reached peak ETFs?
00:49 Maurits Pot
Yeah, so it’s a great question. Thanks for having me on the show today. Uh, and this is are asking themselves, are we at peak ETFs? Given the flow, given the number of ETFs that have launched this year. My view is next year could be even stronger. Growth may come in different areas, but the reality is that, you know, we we have a a big number of ETFs that will still come to market next year we know with for example, the mutual fund share class conversion, with proliferation of fixed income and potentially also a different rates environment that will also drive new product innovation and new product launches.
01:22 Maurits Pot
So, you know, it’s hard to predict what will happen to flows, but I think it’s pretty fair to say that we expect another banner year for ETF launches. Uh partly just for structural reasons. The SEC is now started to improve the first dual uh share class conversions, and we expect those to really be executed in the first half of next year uh with the first party. So, uh overall, I think it looks relatively uh encouraging for next year.
01:46 Maurits Pot
Flows are harder to predict than number of launches, but I think we’ll continue to see more innovation and more product offerings coming to the market.
01:52 Speaker A
And you gave us a few of ETF trends that you’re seeing for next year for that you’re anticipating. So let’s start with active ETFs.
02:00 Maurits Pot
Yeah. So I think active continues to see a big uptake. You’ve seen active having a dominant share of the number of launches this year. And that’s I think partly because active still coming from a low base. But also as we see the proliferation of managers looking to move beyond mutual funds, ETFs is the first, you know, next stop for an active manager. And therefore you’re starting to see a growing number of active managers move to ETFs, um just given that, you know, it’s a preferred vehicle over a mutual fund.
02:30 Maurits Pot
I think in addition to that, the active rapper gives flexibility to offer a whole host of strategies, which may not necessarily be very active in the traditional sense of active, but are active in terms of how they’re defined from an ETF perspective. So let me give you an example. If you look at what’s happening in the levered ETF space or the high income space, or even the buffer space. In most cases, those are all active ETFs. Even though they’re very different to what people would expect from a conventional active actively managed strategy. So I think active ETFs is where there’ll still be a lot of growth, a lot of opportunity next year. But again, active doesn’t come in one flavor on ETFs. There’s many different strands that active ETFs come out with.
03:15 Speaker A
And what about derivative based ETFs?
03:19 Maurits Pot
Again, I think we continue to see a big uh growth in the outcome-based ETF space. I think we’ve seen that also, for example, with the buffer ETFs this year. We’ve seen it continue with covered call and then ultimately with the with leverage ETFs. There’s been a lot of talk, will the SCC allow what will we see the launch of ETFs that are levered that go over two times leverage on single stocks? The ETF short-term has tried to delay if not uh, you know, the the the defer that. But I think it’s clear that some issuers have not pulled their filings and still are very adamant about pushing the envelope on going 3, 4x leverage. So I think we’ll continue to see a lot more different derivative-based ETFs. I think leverage, covered call and buffer are three prominent areas that we’ll continue to see more product innovation.
04:06 Speaker A
And we’ve also seen precious metals at all-time highs. Will that keep ETF flow strong in that space as well?
04:14 Maurits Pot
Yeah, so it’s interesting, commodities actually hadn’t seen that much innovation in a decade, because frankly commodities have frankly not been a very exciting place to be until this year. This has obviously been a get record year for gold, record year for silver, record year for platinum. And I think there will be more commodities that also hit records next year. So we think that actually there’ll be probably a growth in the number of commodity ETFs, especially as managers or as investors start to look at not just buying a single commodity, but actually getting an asset class solution for commodities. And again, going back to active, active gives you a better opportunity and more flexibility to manage risk. So I think we think we’ll see new strands of commodities ETFs coming out next year.
04:55 Speaker A
And the AI trade, that’s been huge. Power is a big bottleneck. Uh talk to us about what you see in utilities, infrastructure, AI.
05:04 Maurits Pot
Yeah, so we launched the world’s first electrification ETF last year, uh about a year ago. Um and you know, what we see is continued demand for a a growing issue or crunch in power. I think you’ve seen our whole spade of AI infrastructure deals announced this autumn. But the consistent question that overhangs these deals is where are we going to find the power to actually bring these deals to market. And that’s actually been said out right by people like Sam Altman and also by Satya Nadella. So I think the big question now is, you know, how quickly can we expand grid capacity and refurbish grid capacity? It’s not about the cost, it’s about the speed, especially given just the sheer amount of uh capacity or sheer amount of demand that’s going to be required on the power side to enable the AI build out and AI expansion that companies have committed to or putting money into the into the to work on. So, overall, I think we think, you know, there’s this structural imbalance in the grid that the US grid just can’t supply or support the demand needs. And there’s a host of money going into that. But frankly, um, you know, we still think it’s going to take longer for that, you know, uh, for that mis the supply and demand imbalance to to fix itself. And that creates a number of investment opportunities.
06:30 Speaker A
Thank you, Maurits, and happy holidays to you.
06:33 Maurits Pot
Happy holidays. Thanks for having me on.