Actively managed ETFs are evolving as asset managers explore different approaches to entering the fast-growing market that recently crossed $1 trillion in assets globally, according to panelists at the 5th annual ETFGI Global ETFs Insights Summit in New York on Tuesday.
Asset managers are increasingly looking at multiple pathways to launch active ETFs, where global assets under management have surged 43% so far this year, according to ETFGI. Converting existing mutual funds, launching proprietary trusts, or using multiple series trusts are among the avenues being pursued, panelists noted during the discussion.
As assets in active ETFs continue to grow, asset managers face mounting pressure to adopt their business models and product lineups in an effort to enter and boost their presence in the lucrative market. Their choices between converting mutual funds, creating share class structures, or launching new products will determine how investors access active strategies and potentially reshape trillions in mutual fund assets, according to panelists.
Fund issuers are eying larger slices of the active management portion of the $10 trillion exchange-traded fund industry. Worldwide, year-to-date net inflows reached $240 billion through September this year, more than double the $114 billion in the same period last year, according to ETFGI.
Mutual fund conversions continue to attract interest from asset managers, with U.S. Bank having completed 16 mutual fund to ETF conversions for different clients, according to Josh Jacobs, chief commercial officer of ETFs at U.S. Bank.
While firms explore offering ETF share classes within existing mutual funds, 32 firms have filed applications with the Securities and Exchange Commission to create this dual-share class structure, according to panelists. These applications face regulatory hurdles and timing uncertainties related to the upcoming U.S. presidential election.
The share class model raises questions about how to handle cost allocations between mutual fund and ETF share classes, particularly around trading costs, panelists explained.
Cost considerations remain central to active ETF development, with firms carefully weighing fee structures. Some providers, like Avantis Investors, have opted to price their ETFs and mutual funds identically to let advisors choose based on wrapper preference rather than cost, according to Cleo Chang, chief investment solutions officer at Avantis Investors.
Semi-transparent and non-transparent active ETFs have seen limited adoption, with 52 ETFs holding $14 billion in assets, compared to $791 billion in fully transparent active ETFs, panelists noted. The limited scope of permissible investments and concerns from capital market participants have restricted growth in this segment.