This active use of passive building blocks has helped to spur demand for ETF strategists. These strategists work with advisors to help them implement investment strategies by researching, designing and managing ETF portfolios. This is a topic that my colleague, Brie Williams, has been covering on SPDR® Blog.
The use of active ETFs: Active ETFs account for just 7.6% of all outstanding funds and less than 1% of Exchange Traded Product (ETP) assets, but they continue to grow.1 The panel spent a lot of time discussing what’s driving this growth: Is it demand from investors? Or is it managers developing actively managed funds ahead of potential investor demand?At State Street Global Advisors (SSGA), our point of view is that there are certain strategies, approaches and asset classes that may lend themselves to active management—such as fixed income.We have seen that fixed income markets have become increasingly difficult for investors to navigate and a diversified fixed income portfolio suited for the current environment isn’t easy to build. It may require more than a simple mix of US Treasuries, corporate debt and high-quality structured credit.
We believe actively managed ETFs allow investors to “outsource the core” to managers who have experience with and a track record in navigating different fixed-income environments in order to gain broader exposure.
ETFs 3.0: You can’t be on a panel about the evolution of ETFs and not be asked to make some predictions about the industry’s future.Five years from now we think that ETF adoption rates will remain high, although the pace of growth could slow as the industry matures. Adoption will be swift in emerging markets as newly affluent investors choose to invest first in ETFs, eclipsing traditional mutual funds.We also think new fund launches will likely slice the market into ever-thinner segments, especially in the emerging market and fixed income space. This means the industry will potentially have to watch for saturation and fund sponsors will increasingly look for ways to specialize to remain differentiated in the marketplace.
For Investment Professionals who want to learn more about where ETFs are headed, you can find SSGA’s latest research on SPDR University, including A Primer on Active ETF Due Diligence, Active vs Passive Redux: From Polar Opposites to Portfolio Complements and a case study on advanced beta.
1Morningstar Direct, as of 5/31/2015
This article was written by Michael Arone, CFA, Managing Director of State Street Global Advisors and the Chief Investment Strategist for the US Intermediary Business Group.