It was another record year for ETFs in 2022, with the number of launches on pace to break 2021’s record (as of early December), and assets continuing to shift more in favor of them over mutual funds. In fact, this year saw a $1.5 trillion gap in the asset flows from mutual funds into ETFs, up from $950 billion last year.
Among the launches this year was that of a flurry of single-stock ETFs, which tracks the performance of a particular stock as opposed to following an index. While the idea may seem intriguing, financial advisors have been quite critical of them, urging clients to stay away—far away.
“These should be avoided like the plague for the families we serve,” said Vance Barse, wealth strategist and founder of Your Dedicated Fiduciary.
“These are generally expensive. They can be remarkably volatile, lack diversification, and are far outside the risk tolerance and investment objectives for our clients,” he said. “And when I think about it, the road to Hades is often paved with good intentions, and for our clients, the best thing to do when it comes to these types of leveraged derivative products, may simply be to avoid the heat.”
In addition to single-stock ETFs, there was also a lot of hype in 2022 around a long-anticipated Bitcoin ETF. While Bitcoin futures ETFs have launched, the SEC repeatedly this year stalled and denied multiple asset managers’ attempts at launching a spot Bitcoin fund.
In fact, Grayscale Investments grew so frustrated with the SEC that it filed a lawsuit against the regulator, calling its decision to deny its bid to convert its $12 billion spot Bitcoin trust into an ETF “capricious” and “discriminatory.”
“The test the SEC has applied to Bitcoin-related ETFs, and only Bitcoin-related ETFs, is flawed and has been inconsistently applied with a ‘special harshness’ to spot Bitcoin ETFs,” the firm argued.
There’s more to come on both of these fronts, but click through this slideshow to follow WealthManagement.com‘s coverage of the launch of single-stock ETFs and the battle to get a Bitcoin ETF off the ground.