Home etftrends.com Uncovering Opportunity in Active ETFs

Uncovering Opportunity in Active ETFs

Our ongoing love affair with active management in ETFs isn’t just a narrative, the latest Global ETF Survey confirms.

Conducted annually by Trackinsight (this year in partnership with J.P. Morgan and State Street), the survey found that global active ETF assets have grown more than four-fold in the past four years.  And data show that appetite for active ETFs is seen by both product providers, who see opportunity in the space, and allocators, who are investing in them.

In its entirety, the report titled “Global ETF Survey 2024: 50+ Charts on Worldwide ETF Trends” tells us – in pictures – a story of a global industry in growth mode, with active management having quite a moment.

Consider, for instance, the increase in net launches of active ETFs vs. passive in North American markets in 2023 (NORAM for short) in the chart below. The absolute number of total net launches may not have eclipsed a previous record, but the spread between active and passive is remarkable, to the benefit of active:

Underscoring the significance of that spread is the fact that in the past year, we’ve seen our ETF open-to-close ratio drop to about 2 from as high as 5, meaning that for every 2 ETFs that open, 1 closes – a maturing industry that’s been welcoming a lot more active ETFs.

Meanwhile, allocators are taking a closer look at actively managed ETFs and increasing their allocations to them, as the charts below show.

Plot Twist?

One interesting wrinkle deeper in the numbers is where active is seen as delivering value. For example, the survey found that about 73% of advisors either invest in or have a “keen interest” in active ETFs, but many report that active management has delivered value-add mostly in equities – not fixed income or alternatives or something else. That perception of value is striking given the long historical track record of passive vs. active equity funds.

What’s more, a look at fixed income investing in the survey showed that allocators still share a slight preference for passive management in that asset class.

These adoption trends are especially interesting because when it comes to actively managed ETFs in North America, it’s performance that leads decision-making and product choice, not the pursuit of diversification as is the case in EMEA region. So, advisors are finding – or chasing – outperformance in active ETFs and finding that value mostly in the equity space. Consider us a little surprised.

Looking Ahead

One possible implication of these findings is that we may have not yet tapped the potential for active management to deliver value across the ETF marketplace.

If you consider that advisors have yet to fully embrace active management across other asset classes, but a lot of product development is happening exactly there – in fixed income, in alternatives and in packaged one-ticker solutions – it could be that we have a lot more product development ahead of us, and more importantly, a lot more unlocking of value in the active ETF wrapper itself.

The good news: we are going to be exploring these trends more deeply come March 28. Together with NYSE, JP Morgan and State Street, we’ll have the opportunity to talk through the data and the stories behind it, looking to understand what’s driving ETF development and adoption and where value-add innovation will come from.

We’d love to have you join us for the “NYSE ETF Education Series: Uncovering Investor Trends from the 2024 Trackinsight Global Investor Survey.” Please sign up right here, and we hope to see you at 1pm ET sharp!

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