Passive exchange traded funds that follow indexes still account for the lion’s share of the business, despite years of hype over the arrival of actively managed ETFs.
“It’s a question of when, not if, active ETFs will be part of the landscape,” said Tony Rochte, head of the North American intermediary business group at State Street Global Advisors.
Although over 800 active ETFs have been filed with regulators, he noted that less than 1% of total ETF assets reside in active funds. Speaking at the recent Morningstar ETF Invest Conference, the State Street executive said the business needs to focus on “responsible innovation,” adding the market “hasn’t voted yet on active ETFs.”
Sue Thompson, head of BlackRock’s registered investment advisor group and 401(k) sales, said the wider proliferation of active ETFs is going to happen, although regulatory approval to launch funds takes time.
Some of the challenges for active ETFs include transparency and the ability to trade derivatives such as futures and options, added Rick Genoni, head of Vanguard’s ETF product management department. He said there are three subcategories within active ETFs: “pure” active funds, funds of funds, and active strategies that are baked into rules-based indexes.