Trends Watch: Investing in ETFs

EisnerAmper’s Trends Watch is a weekly entry to our Alternative Investments Intelligence blog, featuring the views and insights of executives from alternative investment firms. If you’re interested in being featured, please contact Elana Margulies-Snyderman.   

This week, Elana talks with Wesley Gray, CEO, Alpha Architect, LLC.  

What is your outlook for investing in ETFs?  

ETF investing has been a powerhouse of innovation and efficiency for over 30 years, and it shows no signs of slowing down. ETFs continue to evolve, but they will continue to offer a broader range of products, with enhanced tax efficiency and lower costs. As we look ahead, ETFs are likely to maintain their leading edge in the investment world, offering ever-more sophisticated solutions for investors.  

Where do you see the greatest opportunities and why? 

The most exciting opportunity in the ETF space is the tax-free conversion from traditional asset wrappers—such as mutual funds, hedge funds, and separately managed accounts (SMAs)—into ETFs. It’s like upgrading from a vintage car to a high-performance vehicle, but without the tax bill. The ETF transition can enhance tax efficiency and reduce costs, providing a strategic advantage for savvy investors. For those looking to optimize their portfolios, this opportunity is not to be missed. 

What are the greatest challenges you face and why? 

Navigating the marketing and distribution landscape in asset management is a bit like trying to stand out in a crowded room—challenging yet crucial. With a plethora of investment products available, clearly communicating their benefits can be a daunting task. Building a strong brand and establishing trust with investors are essential for overcoming these hurdles. However, achieving these goals is a long-term endeavor that requires patience and strategic effort. 

What are the greatest concerns you have and why? 

One potential concern is the legislative risk associated with ETF tax benefits. Specifically, the possibility that U.S. Congress might eliminate IRC Sec. 852(b)6 could impact the tax advantages currently enjoyed by ETFs. This scenario would be a significant shift in the landscape. While it’s a potential tail risk to the ETF industry, eliminating the tax efficiency of ETFs would critically wound, but not eliminate, ETFs. Consumers would still enjoy their low costs, transparency and easy access. 

The views and opinions expressed above are of the interviewee only, and do not/are not intended to reflect the views of EisnerAmper.