Q&A with James St. Aubin, Chief investment Officer, Ocean Park Asset Management

Q&A with James St. Aubin, Chief investment Officer, Ocean Park Asset Management

Nasdaq Trade Talks:

Factors Driving Investor Demand for Actively Managed ETFs

Q1: Have ETFs become table stakes for active asset managers?

A2: Yes. I think every asset manager has to be considering ETFs, if they haven't already launched one. Demand from advisors and individual investors is really driving the shift away from traditional SMAs and mutual funds into the ETF space, and we expect that to continue. We're still in the very early innings of the trend.

Q2: There are thousands of ETFs in the past few years. Why the sudden uptick?

A2: If you are asking “Why active, and why now?” you have to remember that ETFs have been around since the mid-early-1990s, but the rule for ETFs changed in 2019. Prior to 2019, it wasn't very practical to have actively managed ETFs. Only now, due to the rule change, has product development really begun. Currently, there are about 1,600 active ETFs, and perhaps a third of them have a track record longer than three years. We are definitely in the early stages of active managers looking at ETFs as a potential distribution opportunity.

Q3: As it relates to cost, do you “get what you pay for” within the active space?

A3: I think so. There was a race to the bottom, and beta is commoditized, so it’s really about costs and how much it trades in both implicit and explicit costs. But active managers do deserve compensation when they deliver on what they promise. And they must deliver in order to earn those fees. Generally, I think that we're not going to see the kind of competition we did in the past -- which was, the only differentiator in passive is not necessarily the only differentiator in active.

Q4: How do you compare passively managed investments to active products?

A4: The words active and passive can get muddled a little bit. In actuality, a passively managed strategy can be an index strategy. You can have an actively managed strategy that is indexed. So that's where these terms get a little confusing. Just because it's indexed doesn't mean it is passive, and many of those active, index strategies are actually trying to beat the benchmark. If you think about factor products, for example, they are generally trying to beat a traditional market cap weighted benchmark. If you're looking at comparing these products, you should also consider what would be labeled as passively managed but is actually trying to beat the benchmark.

Q5: What's next for this rapidly evolving space?

A5: I think we’ve seen some initial crowding in certain spaces. For example, option-based products are almost a quarter of the total universe right now, and it seems to be getting somewhat saturated. You then see other categories that perhaps have a smaller, opportunity set at the moment. So, I think, as asset managers contemplate their business strategy going forward, they're going to look at what what's available in the space, asking themselves “Can I compete?”

I wouldn't be surprised to see the number of ETFs easily double over the next five years. Which particular categories will drive the most development is really dependent on demand. What’s been successful so far has been option strategies, and that’s where we’ve seen the most development. As that starts to broaden out, I think you'll see managers looking to put out products in other areas.

This Q+A was derived from CIO James St. Aubin’s portion of the NASDAQ panel discussion titled “What Factors Are Driving Investor Demand for Actively Managed ETFs?” which took place on August 21, 2024. A link to the full episode, can be viewed here: https://www.nasdaq.com/videos/what-factors-are-driving-investor-demand-actively-managed-etfs

DISCLOSURES:

Advisory services are offered through Ocean Park Asset Management, LLC, a registered investment adviser (“RIA”) regulated by the U.S. Securities and Exchange Commission (“SEC”). The advisory services are only offered in jurisdictions where the RIA is appropriately registered. The use of the term “ registered” does not imply any particular level of skill or training and does not imply any approval by the SEC. For information pertaining to the registration status of Ocean Park Asset Management, LLC, please call 1-844-727-1813 or refer to the Investment Adviser Public Disclosure website (www.adviserinfo.sec.gov).

Past performance does not guarantee future results and there is no guarantee that any investment strategy will achieve its objectives, generate profits, or avoid losses.

Investors should carefully consider the investment objectives, risks, charges, and expenses of the Ocean Park Mutual Funds and Ocean Park ETFs (collectively, “Ocean Park Funds”). This and other information about the Ocean Park Funds are contained in the prospectus and should be read carefully before investing. The prospectus can be obtained by calling toll free 1-866-738-4363 (1-866-RETI-FND).

The Ocean Park Funds are distributed by Northern Lights Distributors, LLC, member FINRA/SIPC. Ocean Park Asset Management, LLC is not affiliated with Northern Light Distributors, LLC.

Each ETF has specific risks, and the Prospectus should be carefully read before investing. ETFs are subject to specific risks, depending on the nature of the underlying strategy of the fund. These risks could include foreign risk, emerging market risk, liquidity risk, sector risk, as well as risks associated with fixed income securities, real estate investments, and commodities, to name a few. While the shares of ETFs are tradeable on secondary markets, they may not readily trade in all market conditions and may trade at significant discounts in periods of market stress. ETFs trade like stocks, are subject to investment risk, fluctuate in market value and may trade at prices above or below the ETF’s net asset value. Brokerage commissions and ETF expenses will reduce returns. There is no guarantee that an ETF will achieve its objective. The ETFs are newly formed and have no operating history.

This information is for educational purposes and is not intended to provide, and should not be relied upon for, accounting, legal, tax, insurance, or investment advice. This does not constitute an offer to provide any services, nor a solicitation to purchase securities. The contents are not intended to be advice tailored to any particular person or situation. We believe the information provided is accurate and reliable, but do not warrant it as to completeness or accuracy. This information may include opinions or forecasts, including investment strategies and economic and market conditions; however, there is no guarantee that such opinions or forecasts will prove to be correct, and they also may change without notice.

0683 - OP00ZFLY 12022024