By Todd Rosenbluth, CFRA
The active equity ETF universe is getting more crowded as more established mutual fund providers enter the market and the suite of Buffer ETFs, also known as defined outcome ETFs, become more prevalent.
While equity ETFs represent 54% of the active ETF offerings available, this year equity funds make up 82% of the active launches.
Buffer ETFs offer guardrails and provide investors with downside protection against some market losses in exchange for a cap on the upside. In 2020, Innovator Management and First Trust have continued to expand and refresh their respective buffer ETFs, such as Innovator S&P 500 Buffer ETF – April (BAPR) and FT CBOE Vest U.S. Equity Buffer ETF – May (FMAY). These funds cap both the downside and upside, using options.
Meanwhile, both established ETF providers and new entrants launched equity ETFs that, like ARKK, disclose holdings daily. For example, investors know the top two positions for newly launched JPMorgan International Growth ETF (JIG) in early August were Alibaba (BABA) and Taiwan Semiconductor (TSM).
In August, T. Rowe Price launched four such ETFs that are tied to well-known active mutual funds strategies, including T. Rowe Price Blue Chip Growth ETF (TCHP). TDVG is managed by Larry Puglia, the long-time manager of CFRA five-star rated T Rowe Price Blue Chip Growth (TRBCX), which focuses on established companies that have above-average earnings growth. T Rowe Price has not yet disclosed the ETF holdings, but we know that Amazon.com (AMZN) was the mutual fund’s largest as of July 2020.
These semi-transparent ETFs join American Century Focused Dynamic Growth (FDG), Clearbridge Focus Value ETF (CFCV), and Fidelity Blue Chip Growth (FBCG) and others that launched in 2020 from established actively managed mutual fund firms seeking to offer their stock selection skills to an ETF audience.
As a group, actively managed equity ETFs comprise less than 1% of equity ETF assets and just 20% of the active ETF asset base. However, as a group, stock selection based ETFs gathered 33% of the net ETF inflows to active ETFs in 2020 proving that it is not just cash-like PIMCO Enhanced Short Maturity ETF (MINT) and JPMorgan Ultra-Short ETF (JPST) that can gather actively managed assets.
ARK Innovation ETF (ARKK), which focuses on high-growth areas such as fintech, genomics, and industrial innovation, has been the equity ETF standout this year from a flows and performance perspective. ARKK gathered $2.8 billion and generated a 65% gain year-to-date through August 7 aided by large stakes in Square (SQ) and Tesla (TSLA). Meanwhile, two other ARK ETFs, ARK Web x.0 (ARKW) and ARK Genomics (ARKG) pulled in more than $2 billion combined.
CFRA thinks while the assets remain limited, investors favoring active management will find the tax-efficiency and liquidity of the ETF structure to be appealing. In addition, while we strong believe in holdings analysis, we believe many investors are not looking daily at what’s inside the portfolio and should be comfortable with delayed insight into the portfolio if the strategy makes sense and the performance is strong.
Todd Rosenbluth is Director of ETF & Mutual Fund Research at CFRA.
All of the views expressed in this research report accurately reflect the research analyst’s personal views regarding any and all of the subject securities or issuers. No part of the analyst’s compensation was, is, or will be, directly or indirectly, related to the specific recommendations or views expressed in this research report. For more information and disclosures, please refer to CFRA’s Legal Notice at https://www.cfraresearch.com/legal/.
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