The chief executive of Franklin Templeton, one of the world’s largest asset managers, said that exchange traded funds (ETFs) will probably cannibalise some of the mutual funds market, as investors shift to lower-cost and more transparent products.
The Growth and Popularity of ETFs
ETFs are investment funds that track the performance of a basket of securities, such as stocks, bonds, commodities, or currencies, and trade on stock exchanges like regular shares. ETFs offer several advantages over mutual funds, such as lower fees, higher liquidity, tax efficiency, and diversification.
ETFs have grown rapidly in popularity and size in recent years, especially among retail and institutional investors, who are looking for more flexibility and choice in their portfolios. According to the data from the Investment Company Institute, the global ETF market reached $9.4 trillion in assets under management (AUM) at the end of 2023, up from $6.2 trillion at the end of 2019. The U.S. accounted for more than 70% of the global ETF market, followed by Europe and Asia-Pacific.
The Impact of ETFs on Mutual Funds
Mutual funds are investment funds that pool money from investors and invest in a portfolio of securities, such as stocks, bonds, or money market instruments, and are managed by professional fund managers. Mutual funds charge higher fees than ETFs, and are less liquid and transparent, as they are priced only once a day, and may have minimum holding periods and redemption fees.
Mutual funds have been losing market share and inflows to ETFs, as investors seek more cost-effective and convenient alternatives. According to the data from the Investment Company Institute, the global mutual fund market had $51.8 trillion in AUM at the end of 2023, down from $52.7 trillion at the end of 2019. The U.S. accounted for more than 50% of the global mutual fund market, followed by Europe and Asia-Pacific.
The View and Strategy of Franklin Templeton
Franklin Templeton is one of the world’s largest and oldest asset managers, with more than $1.5 trillion in AUM as of December 31, 2023. The company is best known for its expertise and leadership in mutual funds, especially in the active and fixed income segments.
However, the company has also been expanding and diversifying its ETF offerings, in response to the changing preferences and demands of its clients and the market. The company launched its first ETF in 2013, and now has more than 40 ETFs across various asset classes, regions, and strategies, with more than $20 billion in AUM as of December 31, 2023.
The company’s CEO, Jennifer Johnson, said in an interview with the Financial Times that ETFs will probably cannibalise some of the mutual funds market, as investors opt for lower-cost and more transparent products. She said that the company’s ETFs are complementary to its mutual funds, and that the company will continue to offer both products to meet the diverse needs and goals of its clients.
She also said that the company will focus on developing and delivering innovative and differentiated ETFs, especially in the smart beta and active segments, where the company can leverage its research and investment capabilities and add value for its clients. She said that the company expects its ETF business to grow faster than its mutual fund business, and to contribute more to its revenue and profitability in the future.