3 Thoughts on 2024 ETF Investing Trends

---

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:

1. Seeking attractive yield. Appeals to short-term and conservative investors and those concerned with 2024’s equity markets.
2. Managing potentially lower risk. With their low duration, these products mitigate interest rate risk.
3. 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.