Can Smart Beta ETFs Return to Prime Time?

Active ETFs have scored more investor interest this year than smart beta ETFs—but does that mean the latter will soon be out of the game completely? David Mann, Head of ETF Product & Capital Markets at Franklin Templeton, opines.

I have been hesitant to put pen to paper for another exchange-traded fund (ETF) article considering that any topic would probably be disappointingly less fun than our recent Taylor Swift/ETF eras commentary. During these occasional bouts of writer’s block, I always turn first to my wife for any suggestions or sage guidance on her part. She was in the middle of watching the latest episode of “60 Minutes” and before I could even seek her counsel, she asked, “Who is Deion Sanders, and what is going on with Colorado football?”

Okay! Starting with the second part of that question, the renaissance underway with the University of Colorado football team has been nothing short of astonishing. Last year, they won one football game. One! This year they’re undefeated, ranked in the top 20 nationally, and have a road win over last year’s championship game finalist. Leading the team—and the reason there’s now a waiting list for season tickets—is their first-year head coach, Deion Sanders.

Nicknamed “Prime Time” for his confidence bordering on arrogance, Sanders has been a sports fixture in my life since the early 90s. He is a National Football League (NFL) Hall of Famer who won Super Bowls with both the 49ers and the Cowboys. And, he also happened to play professional baseball for almost a decade. After retiring, he then had a long career as a sports broadcaster before entering the coaching arena in 2020 at Jackson State (hence: Coach Prime).

For decades, I’ve heard Sanders referred to as a two-sport superstar. But to me, that is not entirely accurate. I believe he is a generational NFL talent who also happened to be good enough to play professional baseball. I can only speculate that when my wife asked me about Deion Sanders, she was wondering if his sports acumen had some implications to the recent slowdown in smart beta ETF demand.

I really did not appreciate the extent of the reduced inflows into smart beta ETFs until the topic was raised by Nate Geraci during my guest appearance on his “ETF Prime” podcast. For US-listed smart beta ETFs, inflows peaked in 2021 at almost US$150 billion. That pace was almost matched in 2022 when a little over US$130 billion of new money went into smart beta ETFs. This year—which is now almost 75% in the books—smart beta inflows have not even hit US$20 billion.1