Why is There So Much Side-by-Side Management in the ETF Industry?

81 Pages Posted: 22 Jul 2021 Last revised: 1 Nov 2023

See all articles by Mancy Luo

Mancy Luo

Erasmus University

David Schumacher

McGill University

Date Written: November 1, 2023

Abstract

As of 2018, around 60% of ETF managers also manage mutual funds, particularly active mutual funds, in a ``side-by-side'' arrangement (SbS). Mutual fund managers with institutional clients and subject to strong ETF competition are most likely to adopt such dual roles. SbS initiations lead to institutional mutual fund outflows and contemporaneous ETF inflows. These results are driven by the rebalancing behavior of institutional ``relationship’’ clients. SbS ETFs charge an expense premium, are differentiated, and generate stronger ETF growth for firms. This allows firms to leverage manager-client loyalty to respond to ETF competition and expand the firm’s product portfolio with ETFs.

Keywords: ETF managers, mutual fund managers, side-by-side management, flows

JEL Classification: G23

Suggested Citation

Luo, Mancy and Schumacher, David, Why is There So Much Side-by-Side Management in the ETF Industry? (November 1, 2023). Proceedings of the EUROFIDAI-ESSEC Paris December Finance Meeting 2022, Available at SSRN: https://ssrn.com/abstract=3890147 or http://dx.doi.org/10.2139/ssrn.3890147

Mancy Luo

Erasmus University ( email )

Burgemeester Oudlaan 50,
Mandeville Building, Room T08-47,
Rotterdam, 3062PA
Netherlands

HOME PAGE: http://sites.google.com/site/mancyluofinance/

David Schumacher (Contact Author)

McGill University ( email )

1001 Sherbrooke St. W
Montreal, Quebec H3A 1G5
Canada
5143984778 (Phone)

HOME PAGE: http://www.davidschumacher.info

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