Actively managed exchange-traded funds (ETFs) are experiencing a surge in inflows, with predictions pointing to a record $260 billion by year-end. May saw a $22 billion allocation, marking the 50th consecutive month of net gains for active ETFs. This momentum suggests that the total inflow for 2023 could nearly double last year's record of $140 billion, according to State Street (STT). Morningstar Direct anticipates that the number of active ETF offerings will surpass passive ones within the next three to five years.
The appeal of active ETFs lies in their potential to outperform benchmarks and cater to specific market outcomes based on investors' risk tolerance. Despite active funds accounting for only 7% of the $9 trillion in total ETF assets, they have attracted approximately $107 billion this year, representing 32% of all ETF flows. Firms like Dimensional Fund Advisors and JPMorgan Asset Management (JPM) are leading the charge, contributing significantly to the growth of the active ETF sector.
Market Overview:- Active ETFs are poised for a record $260 billion inflow in 2023.
- May's $22 billion intake marked the 50th consecutive month of net gains for active ETFs.
- The number of active ETF offerings may surpass passive ones within three to five years.
- Active ETFs offer the potential to outperform benchmarks and target specific market outcomes.
- Active funds have attracted $107 billion this year, accounting for 32% of all ETF flows.
- Dimensional Fund Advisors and JPMorgan Asset Management are key players in the active ETF market.
- The US securities regulator's 2019 rule change has accelerated the growth of active ETFs.
- Approval of the Vanguard patent could further boost the popularity of active ETFs.
- Investors continue to seek diversification and tailored investment strategies through active ETFs.
The catalyst for this shift was a 2019 rule change by the US securities regulator, which streamlined the process for bringing ETFs to market. Nearly half of the more than 3,400 ETFs in the US debuted after this rule change, with 67% being actively managed. This year alone, 168 actively managed ETFs have launched, compared to 68 passive ones. Firms like T. Rowe Price and their Capital Appreciation Equity ETF, which invests in large US companies such as Microsoft (MSFT) and Nvidia (NVDA), exemplify the growing interest in active management.
This trend reflects a broader move among investors seeking active management to navigate market complexities. While passive ETFs remain popular, the innovation and tailored strategies offered by active ETFs are gaining traction. The financial industry anticipates continued growth in active ETFs, driven by investor demand for personalized and dynamic investment approaches. The potential approval of the Vanguard patent, allowing ETFs to be listed as a share class of mutual funds, could further accelerate this trend.
