At the midpoint of each year, we lay out our predictions of key ETF trends to watch. We also take this opportunity to reveal whether our predictions from the prior period materialized. Let’s see how accurate our early 2022 trend predictions were…

The three trends we identified at the beginning of 2022 are as follows.

Trend #1 – We Will See a Spot Cryptocurrency ETF Launch.
With increased investor interest in cryptocurrency, and some nations (including Canada) allowing products to launch, we expected US regulators would build an oversight framework allowing for a spot cryptocurrency ETF. While futures-based cryptocurrency ETFs launched, we haven’t seen any ETFs investing directly in cryptocurrency coins (spot) approved. In fact, a sizable fund that requested approval was rejected in late June. With substantial market upheaval in the first half of 2022, amid inflation and the war in Ukraine, it appears the SEC could take longer to decide if they will permit a spot cryptocurrency ETF.

Trend #2 – ETFs’ Tax-Efficiency Will Remain Unchanged.
We were right on this one! In Q3 and Q4 2021 there was speculation that the US Congress might eliminate the ability for ETFs to utilize the creation and redemption process to minimize taxes for ETF investors. As members of Congress looked for ways to pay for their infrastructure bill, they saw eliminating the ETF tax benefit as a great revenue generator. Fortunately, they did not pursue this path and found other sources to fund their infrastructure bill.

Trend #3 – Active ETF Assets Will Double From Year-End 2020’s Level.
Active ETF assets were about $200 billion at the end of 2020. We predicted assets would double to $400 billion by the end of 2022. As of the end of May, active ETF assets were about $300 billion (according to Strategic Insight and Simfund). While our prediction hasn’t materialized yet, there’s a good chance that active ETF assets will double by year-end.

With our report card completed, let’s move to our three predictions for the second half of 2022.

Trend #1 – Greater Interest in Active Over Passive ETFs.
With extreme uncertainty in financial markets, headlined by questions over the Fed’s ability to orchestrate a “soft landing” for the US economy, turning one’s savings over to a simple index ETF (which is rules-based and carries no ability to react to market conditions) may carry more risk than some investors are willing to take. Based on our recent discussions with financial advisors and investors, increasing numbers are seeking out adept active managers to navigate this uncertainty. As we think this trend will continue and advance, we expect a higher ratio of active net flows relative to passive net flows in the second half of 2022 relative to 2021.

Trend #2 – More Buying Interest in Growth Over Value ETFs.
Large-cap growth ETFs returned an average of -28.79% in the first half of 2022 vs. -10.23% for large-cap value ETFs, according to Morningstar Direct as of June 30, 2022. We’ve also seen several individual companies’ stocks (Meta, Netflix, and others) lose quite a bit more. As investors look to find true value, they will likely see growth stocks and growth ETFs as good investment opportunities with an attractive entry point. Certainly, this could be risky should a soft landing not be orchestrated, but it’s a risk that could be handsomely rewarded if US inflation can be tamed and the US economy snaps back quicker than some expect.

Trend #3 – Buyers’ Preference for Short Duration Fixed Income Over Long Duration Fixed Income ETFs.
While we often hear that the expectation for continuing rising interest rates is “priced into the markets,” we question whether investor behavior will follow this high-level assertion. In a nervous fixed income market as we’re seeing in 2022, highlighted by significant losses that many fixed income ETFs posted in Q1 2022, investors will likely remain cautious for the rest of the year. We expect investors will see the rising bond market yields, together with the 2-year and 10-year US Treasuries having very similar yields, and decide to “clip” the attractive yield of short duration bond ETFs and hold off on betting on long duration bond ETFs.

We look forward to checking in at year-end to see how our predictions played out for the second half of 2022.

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Cryptocurrencies: A digital currency in which transactions are verified and records maintained by a decentralized system using cryptography, rather than by a centralized authority.

Cryptocurrencies are subject to numerous market risks, they are speculative and volatile, can become illiquid at any time, and are for investors who can tolerate the full loss of their investment.

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 Loomis Sayles Short Duration Income ETF, the Natixis Vaughan Nelson Mid Cap ETF, the Natixis Vaughan Nelson Select ETF, and the Natixis US Equity Opportunities ETF. Natixis Distribution, LLC is a marketing agent. ALPS Distributors, Inc. is not affiliated with Natixis Distribution, LLC.

Natixis Distribution, LLC (fund distributor, member FINRA|SIPC) and Loomis, Sayles & Company, L.P. are affiliated.