AUSTIN, Texas--(BUSINESS WIRE)--Sage Advisory Services (“Sage”) released today the results of its 2023 ETF Stewardship Survey. This annual survey, which is widely followed within the ETF ecosystem and among investors of all types, asks ETF providers about their stewardship practices, allowing Sage to identify trends or changes occurring within the industry and to share best practices among the broader ETF universe.
This year’s survey participants included 19 ETF providers that collectively oversee more than $28 trillion USD in assets across their full range of product offerings. The smallest of these firms manages $333 million while the largest has $8.59 trillion in total AUM. Notably, five of the 10 largest ETF issuers in the US participated, meaning the survey respondents represent a deep and broad cross-section of an ETF marketplace that continues to experience substantial growth in both its size and influence.
“We’re well past the ETF industry having gone mainstream, as an estimated 16 million households in the US have some investment in one or more ETFs, and global ETF AUM is north of $10 trillion,” said Emma Harper, Vice President, Sage Senior Research Analyst, and author of the report. “While the industry’s growth and innovation are commendable, how these assets are managed from a stewardship perspective is a critical, and too often overlooked, aspect of monitoring the space.”
Among the key findings of this year’s report:
- ESG continues to persevere in a tough investment climate. Seven providers listed ESG as their No. 1 or No. 2 expected growth area for the year, even as the category has faced intense criticism in the political arena and rigorous investor scrutiny. Additionally, 40% of recent new ETF issuance from survey respondents were thematically focused on clean energy transition, biodiversity, and low carbon emission themes.
Proxy voting responsibility is becoming muddled and concentrated. Voting company proxies is core to effective stewardship, but based on this year’s survey, the commitment among ETF issuers to providing this service is fading. Pass-through proxy voting is being embraced by some but may lead to increased influence among the two major third-party proxy advisors, which is already on regulators’ radars. Perhaps most concerning, several respondents continue to maintain relatively opaque proxy voting policies and/or would not provide public company voting records.
- On a related note, some passive ETF managers are too often taking a pass on voting decisions, citing their passive management style as a reason to defer voting decisions to proxy advisors or to exempt themselves from active ownership practices. This is a concern that all ETF investors need to be aware of. Voting rights are a critical aspect of stock ownership, and it is the duty of the ETF provider to exercise these rights in the best interest of a fund and its shareholders.
- Transparency is giving way to opacity. In contrast to previous years, this year’s survey responses lacked clear, concise answers to simple yes or no questions regarding issues that were previously freely disclosed. “We attribute this decline in transparency to the punitive political environment, confusion over regulatory guidance, and concern over adverse business outcomes,” Harper said. “While all are certainly real concerns, none exempt an ETF provider from its stewardship responsibilities.”
This fifth annual Sage ETF Stewardship Survey assessed ETF provider stewardship practices across a range of issuers of varying size (including BlackRock, Vanguard, J.P. Morgan, Invesco, Janus Henderson, Simplify, and more) and consisted of 76 questions spanning seven focus areas: voting practices, engagement, stewardship professionals, disclosure, climate initiatives, diversity and inclusion, and sponsor-level governance. Based on these responses, each participating firm was given a grade ranging from A to F. 79% of participating firms received a passing grade in 2023, an improvement from the 70% that had passed in 2022.
“While the transparency of some responses may have waned from previous years, we still commend all of the firms that chose to participate in this year’s survey,” said Bob Smith, President of Sage Advisory. “Using our proprietary scoring system, 50% of repeat participants saw a notable improvement in their overall stewardship score, while 31% saw a decline. Clearly, this is an industry in growth mode but one that has not yet aligned around best practices when it comes to stewardship.”
The full report, which contains additional data, insights, and statistics, can be accessed here: https://www.sageadvisory.com/perspectives/2023-annual-etf-stewardship-report/
About Sage Advisory Services
Sage is an independent investment management firm headquartered in Austin, TX, that serves the institutional and private client marketplace with traditional fixed-income asset management, ESG-integrated portfolios, global tactical ETF strategies, and liability-driven investment solutions. As of October 2023, Sage manages and advises over $23 billion in client assets. For more information, visit sageadvisory.com.