Bailey McCann writes that active ETFs are capturing investor interest, according to the latest data from Morningstar, which finds that active ETFs have captured 25 per cent of ETF flows through the end of June and grew organically at a rate of 20 per cent, while passive ETFs grew at just 3 per cent over the same period.
Actively managed ETF assets grew to a record USD889 billion, up from USD714 billion at the start of this year.
JP Morgan’s active range captured the lion’s share of that growth followed by Dimensional Fund Advisors and BlackRock, the Morningstar data showed.
The data indicates that active funds are having a bit of a moment. Cinthia Murphy, investment strategist at VettaFi, says it’s still a bit early to make any lasting predictions about whether this is a growth trajectory with legs but “the flows indicate that active is delivering value in the current market environment and investors are seeing use cases for them.” What are those use cases? Murphy says investors are primarily looking to actives for income generation, alpha, and risk management.
A number of providers is looking to seize those opportunities. San Antonio-based Victory Capital Holdings has launched three new active funds hitting on each of Murphy’s use cases. They include the VictoryShares WestEnd Global Equity ETF (GLOW) and VictoryShares WestEnd Economic Cycle Bond ETF (BMDL) which launched in June, and the VictoryShares Hedged Equity Income ETF (HEJD) which launched on July 11.
Scott Kefer, senior portfolio manager at VictoryEx Capital Holdings, says more advisers are becoming aware of active ETFs and their uses in the current market environment. “It’s still early in the education cycle and more advisers are recognising what active can do in this market,” he says.
Victory Capital Holdings also announced last week that it was moving forward on a distribution agreement with Amundi. The Amundi US business (formerly Pioneer Investments) will be combined into Victory Capital, and Amundi will become a strategic shareholder of Victory Capital. Under the distribution agreements, Victory Capital will be the supplier of US-manufactured active asset management products for Amundi’s distribution outside of the US.
Model portfolios may also be driving flows into active funds. Arne Noack, head of systematic investment solutions, Americas, at DWS Group, says that many wirehouses and advisers are already offering hybrid active/passive models. “Active strategies can play an important role in models – I would expect active strategies to continue to grow inside models, especially in this type of market environment,” he says.
Noack also sees potential for the growth of active strategies in Europe. “We are seeing decent growth in both the US and Europe. Obviously, the drivers of investor interest are slightly different. ETFs don’t necessarily have the same tax treatment in Europe that they do in the US, for example. But we are still seeing investor demand for active strategies in both places,” he says. DWS offers active strategies in Europe through its Xtrackers range.
VettaFi’s Murphy says growing investor interest in actives is likely to continue to draw brand-name asset managers and lead to continued product innovation. “It’s an exciting time for active ETFs,” she says. “If you look at who is bringing products to market – these are well known brands and they are bringing clout to active ETFs. I think it’s going to be interesting to watch how asset managers continue to innovate here and how investors use these tools in their portfolios.”