Industry Updates

ETF Wrap: A month defined by volatility

An S&P 500 drawdown, record ARK ETF volumes, ETF voting and company acquisitions and closures made headlines this week

Jamie Gordon

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Bloomberg dubbed the S&P 500’s 11% decline over the first 16 days of 2022 the worst-ever start to a year in history, a trajectory worsened by the index’s 4% contraction during pre-market trading on Monday.

The iShares Core S&P 500 UCITS ETF (CSPX) collapsed 10.5% by 24 January, very much in correction territory amid forecasts of at least three Federal Reserve interest rate hikes in 2022, concerns over slowing economic growth and the tense geopolitical situation in Ukraine.

The posterchild of this greed-to-fear rotation has been Cathie Wood’s flagship Ark Innovation ETF (ARKK), which has seen more than $2bn outflows and returned -41.3% over the past six months, according to data from ETFLogic.

This week, investors have been in two minds as to whether ARKK is now at a fire sale price or whether still-high valuation metrics and the monetary outlook mean further downside is on the way. The ETF booked $323m inflows in the week to 26 January. Meanwhile, the contrarian Tuttle Capital Short Innovation ETF (SARK) took in its first institutional-scale order of almost $100bn on Thursday, according to Bloomberg Intelligence, taking its total assets to $337m in under three months.

Viewing the market correction narrative as “overdone”, JP Morgan’s head of quantitative research, Marko Kolanovic, said recent bearishness was at odds with activity momentum, easing supply chain bottlenecks and the likelihood of a strong earnings season.

Despite this, European investors have largely shunned growth ETFs this month, with three value-weighted ETFs and one equal-weight S&P 500 ETF from BlackRock and DWS booking combined inflows of $658m last week.

‘Big Three’ ETF issuers between a rock and a hard place when exerting their voting power

BlackRock, Vanguard and State Street Global Advisors (SSGA) have significant voting power as they control around 22% of the float of an average S&P 500 company, up from 13.5% in 2008, according to data from Bloomberg.

The problem is despite these issuers having their own ranges of environmental and socially responsible ETFs, research from ShareAction claimed the ‘Big Three’ were less likely to vote in favour of shareholder resolutions on ESG matters. In fact, an additional 18 resolutions would have passed in 2021 had one or more of the triad voted in favour, the research said.

Contravening this, a paper from the George Mason University’s Antonin Law School bemoaned the ‘Big Three’ for using their voting powers as a marketing tool to attract millennial investors, with wins on moral issues such as environmental preservation and gender representation on boards. It suggested ETFs should instead take a leaf out of the defined contribution pension market where fiduciary duties are enshrined in law.

Big players keep the ETF industry on its toes 

Looking to extend their ETF venture, AssetCo, chaired by former Aberdeen Standard head Martin Gilbert, said it would convert some of River and Mercantile Group’s strategies into ETFs after it acquired the firm for £100m. This follows AssetCo’s majority stake acquisition in thematic ETF issuer Rize ETF last July.

Elsewhere, it was revealed in a Securities and Exchange Commission (SEC) filing founder and chairman of ETFS Capital Graham Tuckwell wants to take a seat on the board of WisdomTree following the firm’s underperformance since it acquired ETFS Securities in 2018. Tuckwell’s firm is WisdomTree’s largest shareholder, with a 10.5% stake, however, WisdomTree’s share price has fallen from $9 on 11 April 2018 to $5.6 on 26 January.

Finally, ETF Stream revealed on Thursday that liquidity provider, Bluefin, has closed its European business with immediate effect despite plans to branch out into pricing crypto exchange-traded products (ETPs).

ETF Wrap is a new, weekly digest of the top stories on ETF Stream