Why is There So Much Side-by-Side Management in the ETF Industry?
75 Pages Posted: 22 Jul 2021 Last revised: 22 Mar 2022
Date Written: March 10, 2022
As of 2018, around 60% of individual ETF managers manage mutual funds in a “side-by-side” arrangement, most of which are active mutual funds. Mutual fund managers with institutional clients but exposed to strong ETF competition are most likely to adopt such dual roles. Side-by-side initiations lead to discretionary institutional outflows from mutual funds and contemporaneous inflows in the manager’s ETFs. These results are driven by institutional clients with likely stronger relationships with the manager. Side-by-side ETFs charge higher expenses than competing ETFs suggesting that exploiting manager-client loyalty allows mutual fund firms to soften and manage the rise of ETFs.
Keywords: ETF managers, mutual fund managers, side-by-side management, flows.
JEL Classification: G23
Suggested Citation: Suggested Citation