As part of a wide ranging 2020 industry trend outlook, a survey of US asset managers and asset owners conducted by State Street Corporation (NYSE: STT) predicts continued prevalence of digital assets as well as a bigger role in the industry for semi-transparent active ETFs.
Given the more supportive regulatory stance the Securities and Exchange Commission (SEC) has recently taken toward semi-transparent active ETFs, many respondents now see a much bigger role for these vehicles in the market. Nearly half (47%) say semi-transparent ETFs will play a significant role in their firm’s future portfolio strategy. Similarly, 46 percent of respondents say these products will help to stem the flow of assets from active investments to passive.
“The survey supports what we have anecdotally believed for some time – the future is bright for active equity ETFs, as well as firms seeking to outsource trading activities and increase allocations to digital assets-related investments,” said Nadine Chakar, global head of State Street’s Global Markets business unit. “It’s an exciting time for technology and innovation in the industry, and ultimately investors will benefit from new technologies and a wider range of choices for constructing portfolios.”
Additional highlights of the survey include:
Digital Asset Strategies:
Digital assets continue to come a long way in gaining credibility among institutions, with only six percent of survey respondents reporting that they have no digital assets-related investments and no plans to invest in the next year. The survey also found:
- 38% will increase their allocation and 45% will maintain the same allocation. More than two-thirds (69%) of the largest firms plan to boost allocations of this asset class.
- 45% say the tokenization of traditional assets will be a massive disruption to the market within the next five years. However, 55% say tokenized assets’ inherent risks are too great for widespread institutional adoption.
- 45% believe a bitcoin ETF (or other cryptocurrency ETF) will receive regulatory approval and launch in 2020.
- Respondents cite myriad benefits of tokenization including: improvement of risk management (62%) and transparency (55%), enhanced security (55%), and democratization of investing for retail investors (36%). Only 4 percent see no benefits from tokenization.
When discussing trading technology upgrades planned for their organizations in 2020, blockchain/DLT (62%) and AI/machine learning (50%) are taking priority among respondents as key investments, followed by robotic process automation (31%) and natural language processing (24%). Additionally, more than a quarter (27%) plan to increase the amount of trading they outsource.
When polled on financing trends:
- 50% say their firm is investigating cleared repo, securities lending and new trading solutions.
- Only 44% say they are prepared for the new collateral requirements under the Uncleared Margin Rules.
- 65% say DLT will improve financing solutions in the future. 59% say the same of AI.
- Nearly a third of respondents (30%) cited Social Media/web scraping as the most popular alternative data source for providing a competitive edge, followed by credit/debit transactions (22%), ESG metrics (20%) and geolocation/satellite data (16%)
Global Market Outlook:
When polled on state of the markets, approximately one third (32%) have a bearish global markets outlook for 2020, but the largest institutions seem more sanguine than smaller ones with 57 percent larger asset managers are very or somewhat bearish and 67 percent of smaller players are very or somewhat bullish.
About State Street Corporation
State Street Corporation (NYSE: STT) is one of the world’s leading providers of financial services to institutional investors including investment servicing, investment management and investment research and trading. With $32.90 trillion in assets under custody and administration and $2.95 trillion* in assets under management as of September 30, 2019, State Street operates globally in more than 100 geographic markets and employs approximately 40,000 worldwide. For more information, visit State Street’s website at www.statestreet.com.
* Assets under management include the assets of the SPDR® Gold ETF and the SPDR® Long Dollar Gold Trust ETF (approximately $44 billion as of September 30, 2019), for which State Street Global Advisors Funds Distributors, LLC (SSGA FD) serves as marketing agent; SSGA FD and State Street Global Advisors are affiliated.