The big conference is bringing together emerging ETF trends in Bitcoin, AI, and the Magnificent 7.

The annual Exchange ETF conference is attracting over two thousand attendees at the Fontainebleau Hotel in Miami Beach. To lure participants, the organizers have rented out the entire LIV Nightclub Miami at the hotel for a Super Bowl party on Sunday night.

The conference primarily serves as an opportunity for the ETF industry representatives and RIAs to socialize, but the industry requires guidance.

Despite the maturing industry, there is still an influx of funds.

The ETF industry remains a dominant force, with over $8 trillion in assets under management. The popularity of indexing and passive investing, which initially drove the growth of ETFs 30 years ago, continues to attract new investors. As more investors, including the younger ones who have started investing during the pandemic, recognize the challenges of beating the market, they are turning to ETFs for their investment needs.

The industry is now in its middle age, and most of the easy money has already been made. There are already numerous index funds available.

In order to expand, the ETF industry must offer more active management options and develop innovative strategies to attract investors.

In 2023, actively managed strategies performed well, accounting for approximately a quarter of all inflows. Covered call strategies, such as the , were successful in providing protection during market downturns and generated significant returns. However, with the broad markets experiencing new highs, it remains uncertain if investors will continue to invest in covered call strategies, which, by nature, underperform in rising markets.

The industry has demonstrated remarkable ability to seize the investing zeitgeist of the moment. This can range from frivolous (pot ETFs during a time when there was no real pot industry) to concepts that have endured.

In recent years, thematic tech ETFs such as cybersecurity and electric vehicles have attracted investors.

The big topics in 2024:  Bitcoin, AI, Magnificent 7 alternatives

In 2024, the industry predicts that the new line of bitcoin ETFs will attract billions of dollars. Will bitcoin be accessible to grandma? Only time will tell.

In Miami Beach, besides bitcoin, the major discussions revolve around 1) the impact of A.I. on financial advisors and investors, and 2) encouraging clients to consider equity allocation beyond the traditional seven asset classes.

Notably absent is China investing.

Bitcoin for grandma?  Financial advisors are divided on whether to jump in

Three heads of successful Bitcoin ETFs, Matt Hougan, Steve Kurz, and David LaValle, will lead a panel to advise financial advisors on how to proceed, as they seem divided on the matter.

The founder of Edelman Financial Engines, the #1 RIA in the country, and the head of the Digital Assets Council of Financial Professionals (DACFP), Ric Edelman, will also be present.

Edelman has long been a Bitcoin advocate. Recently, he predicts that Bitcoin's price will reach $150,000 within two years, which is about three times its current value. Additionally, he estimates that Independent RIAs, who manage $8 trillion, could invest 2.5% of their assets under management in crypto in the next two to three years, which would result in over $154 billion.

Bitcoin ETFs have been viewed by some advisors as the first true link between traditional finance and the crypto community, despite inflows into them being modest to date.

Many financial advisors are hesitant to recommend bitcoin due to the numerous competing products and the legal challenges surrounding it, particularly the warning from SEC Chair Gary Gensler that advisors must adhere to "suitability" requirements when recommending bitcoin to clients.

Those suitability requirements, high volatility, charges of manipulation, and doubts about bitcoin as a true asset class will deter many from investing.

The RIA community is being convinced by the bitcoin ecosystem that it is not going into overdrive.

Artificial intelligence: What can it do for the investing community?

In recent years, the interest in thematic tech investing has fluctuated, but AI ETFs such as IRBT, ROBT, and BOTZ have regained some attention. However, determining what constitutes an AI investment and which companies are exposed to this technology remains a challenge.

But the impact is already being felt by the financial advisory community.

Financial advisors are now utilizing AI tools to generate financial podcasts with just a few snippets of their own voice. Pereira explains that it is now possible to create a whole podcast without ever saying the actual words. To generate text, one could use Chat GPT and provide specific instructions, such as writing 500 words about current issues in 401(k)s for a specific audience.

How can you maintain value in a world where generating a podcast on financial advice is accessible to a million people, and lower skilled tasks such as data analysis will become commodified? Pereira predicts that a significant distinction will soon emerge between quantity and quality.

Equity Allocation Beyond the Magnificent Seven

Clients are pressuring financial advisors to invest in Roundhill's new Magnificent 7 ETF (MAGS), which has surpassed $100 million in assets under management in recent months.

Inflows into technology ETFs (Apple, Microsoft, NVIDIA) have been substantial since the end of last year, while communications (Meta and Alphabet) and consumer discretionary (Amazon) have seen modest inflows. However, other sectors have underperformed, with notable outflows in energy, health care, and materials.

Big-cap tech investments carry concentration risks, and advisors are seeking guidance on how to discuss this with clients and plan for the long term.

Alex Zweber, managing director of investment strategy at Parametric, and Eric Veiel, head of global investments and CIO at T. Rowe Price, are leading a panel on alternative investment approaches that have been successful recently, including ETFs that invest in option overlays, as well as quality and momentum investing in general, which is broader than just investing in the Magnificent 7.

Stop talking about numbers and returns and start offering “human-centric” advice

Financial advisors often struggle with clients who are fixated on investing in NVIDIA, Bolivian tin mines, or other risky ventures, and have a tendency to make impulsive decisions.

Brian Portnoy and Neil Bage, the co-founders of Shaping Wealth, are among the early panelists discussing how financial advisors can shift their focus from numbers to a more personal and emotional approach in their client interactions.

The competition for clients has intensified, and a new field has emerged that focuses on providing financial advice that emphasizes behavioral finance and emotional intelligence rather than just numbers such as assets under management, fees, and quarterly statements.

In the human-centric approach to investment advice, more emphasis is placed on discussing behavioral biases that lead to investing errors, rather than on intricate details of the stock market. This can help clients develop behaviors that are more suitable for long-term investing, such as reduced trading and market timing.

This method is considered more effective in maintaining clients for an extended period, according to its supporters.

What’s missing? China

Emerging markets/China investing has been a mainstay topic on the international investing panel at ETF conferences for many years.

The absence of discussion on international investing, particularly China, where political risk is now perceived to be so high that investors are fleeing China and China ETFs, is noteworthy.

Indeed, investing “ex-China” is a bit of a thing.

In 2017, EMXC was launched with little fanfare and had no assets under management for several years. However, in late 2022, China ETFs began to decline, and inflows into EMXC surged as investors sought emerging market exposure, but not to China.