Portfolio construction

3 thoughts on 2024 ETF investing trends

December 27, 2023 - 3 min read

Senior Vice President, Head of Institutional Product and ETFs – Natixis Investment Managers – US Distribution

Three trends strike us as especially compelling for 2024 – including a holdover of an opportunity we had in our 2023 outlook.

Persisting options overlay ETF asset growth

After a strong 2022 and 2023, we expect continued investor interest in options overlay ETFs, despite being relatively new to market. We see a few key attractive subsectors within this category. For one, options-income products have appealed to investors since they distribute an attractive income stream, typically driven by writing calls on equities. While these ETFs give up some equity market upside in return for income generation, investors like the relatively stable derivatives income, perhaps as an income diversifier to their fixed income ETFs.

The newly launched Natixis Gateway Quality Income ETF (GQI) is one such option for investors seeking consistent income while maintaining stock market exposure. An affiliate of Natixis Investment Managers, Gateway Investment Advisers, LLC has focused exclusively on options-based strategies to manage risk and generate cash flow since 1977.

Risk-buffering ETFs do just as the name suggests – mitigate the ETFs’ volatility; this is particularly attractive given investors’ volatility concerns. By combining long exposure to stocks and options securities, investors may come to anticipate a predictable range of performance expectations. We’ll be watching for ongoing interest in this options overlay category as well.

Concentrated equity ETFs appeal

In our discussions with advisors and investors across the country, we hear increasing interest in concentrated equity investing. Investors want their active managers to take decisive bets on their top ideas. While concentrated investing certainly isn’t new among mutual funds, given more active ETFs launching of late, we see growing availability for ETF investors.

A concentrated portfolio construction approach has the potential to empower experienced active managers to deliver above-average returns while ensuring effective risk management. By maintaining a philosophy that is discriminatory by definition, these active managers only include best-in-class securities on which their teams have conducted in-depth, fundamental analysis.

As Warren Buffett has stated: “Diversification may preserve wealth, but concentration builds wealth.” This rings true for active managers who trust their rigorous stock selection process and deeply understand the businesses they own. Natixis offers two of these ETFs, the Natixis Loomis Sayles Focused Growth ETF (LSGR) and the Natixis Vaughan Nelson Select ETF (VNSE).

Shorter-duration fixed income

With short-term interest rates at near multi-year highs in 2023 and attractive yields expected in 2024, we suspect institutional and retail investors will continue allocating portions of their fixed income portfolios to shorter-duration bond ETFs. It’s a simple story for three compelling reasons:

Seeking attractive yield. Appeals to short-term and conservative investors and those concerned with 2024’s equity markets.
Managing potentially lower risk. With their low duration, these products mitigate interest rate risk.
Maintaining flexibility. Some investors prefer to keep their assets in short-term, liquid investments, allowing for quick, tactical rotation to other investments as opportunities arise. Shorter-duration fixed income bond ETFs are well suited to this goal.

Before investing, consider the fund's investment objectives, risks, charges, and expenses. Visit im.natixis.com for a prospectus or a summary prospectus containing this and other information. Read it carefully.

An exchange-traded fund, or ETF, is a marketable security that tracks an index, commodity, bond, or a basket of assets like an index fund. ETFs trade like common stock on a stock exchange and experience price fluctuations throughout the day as they are bought and sold. Short-term fixed income ETFs invest in fixed income securities with durations between one and five years.

All investing involves risk, including the risk of loss. Investment risk exists with equity, fixed income, money market, and alternative investments. There is no assurance that any investment will meet its performance objectives or that losses will be avoided.

The views and opinions expressed may change based on market and other conditions. This material is provided for informational purposes only and should not be construed as investment advice. There can be no assurance that developments will transpire as forecasted. Actual results may vary.

Unlike passive investments, there are no indexes that an active investment attempts to track or replicate. Thus, the ability of an active investment to achieve its objectives will depend on the effectiveness of the investment manager.

Diversification does not guarantee a profit or protect against a loss. There is no guarantee that a diversified portfolio will enhance overall returns or outperform a non-diversified portfolio. Asset allocation does not ensure a profit or protect against loss.

ETF General Risk: ETFs trade like stocks, are subject to investment risk, and will fluctuate in market value. Unlike mutual funds, ETF shares are not individually redeemable directly with the Fund, and are bought and sold on the secondary market at market price, which may be higher or lower than the ETF's net asset value (NAV). Transactions in shares of ETFs will result in brokerage commissions, which will reduce returns. Active ETF: Unlike typical exchange-traded funds, there are no indexes that the Fund attempts to track or replicate. Thus, the ability of the Fund to achieve its objectives will depend on the effectiveness of the portfolio manager. There is no assurance that the investment process will consistently lead to successful investing. Fixed Income Securities Risk: Fixed income securities may carry one or more of the following risks: credit, interest rate (as interest rates rise, bond prices usually fall), inflation, and liquidity. Below Investment Grade Securities Risk: Below investment grade fixed income securities may be subject to greater risks (including the risk of default) than other fixed income securities. Foreign and Emerging Market Securities Risk: Foreign and emerging market securities may be subject to greater political, economic, environmental, credit, currency, and information risks. Foreign securities may be subject to higher volatility than US securities, due to varying degrees of regulation and limited liquidity. These risks are magnified in emerging markets. Interest Rate Risk: Interest rate risk is a major risk to all bondholders. As rates rise, existing bonds that offer a lower rate of return decline in value because newly issued bonds that pay higher rates are more attractive to investors.

ALPS Distributors, Inc. is the distributor for the Natixis Gateway Quality Income ETF, the Natixis Loomis Sayles Focused Growth ETF, and the Natixis Vaughan Nelson Select ETF. Natixis Distribution, LLC is a marketing agent. ALPS Distributors, Inc. is not affiliated with Natixis Distribution, LLC.

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