Why is There So Much Side-by-Side Management in the ETF Industry?
79 Pages Posted: 22 Jul 2021 Last revised: 17 Mar 2023
Date Written: March 17, 2023
As of 2018, around 60% of ETF managers manage mutual funds in a "side-by-side" arrangement, most of which are active mutual funds. Mutual fund managers with institutional clients and exposed to strong ETF competition are most likely to adopt such dual roles. Side-by-side initiations lead to discretionary institutional mutual fund outflows and contemporaneous ETF inflows. These results are primarily driven by institutional "relationship" clients. Side-by-side ETFs charge an expense premium, suggesting that mutual fund firms exploit manager-client loyalty to mitigate the impact of rising ETF competition and to support the firms' transition to a new product portfolio with ETFs.
Keywords: ETF managers, mutual fund managers, side-by-side management, flows
JEL Classification: G23
Suggested Citation: Suggested Citation