ETF Industry Threatens SMAs After Mutual Funds

The growing exchange-traded fund (ETF) industry is now eyeing separately managed accounts (SMAs), having already impacted the mutual fund sector. Since 2021, mutual funds in the U.S. have seen over $1 trillion in outflows, while ETFs have gained $2 trillion. This shift has led to numerous mutual fund-to-ETF conversions, with asset managers pivoting toward the rising ETF structure. Now, the ETF industry is turning its focus on SMAs, a fast-growing segment of the $120 trillion global asset management industry.

HANetf, a London-based white-label ETF issuer, recently completed what is believed to be Europe’s first SMA-to-ETF conversion. This trend is also emerging in the U.S., with firms like Tidal Financial Group and Goldman Sachs leading similar conversions. Despite SMAs’ rapid growth, with assets in the U.S. rising from $952 billion in 2017 to $2.2 trillion at the end of last year, some managers and investors are considering the ETF option due to tax benefits and the potential for a broader client base. However, the conversion process may be slow and is expected to have a limited impact on the continued growth of SMAs.