Active Management ETFs Demand their Piece of the ETF Pie

The exchange traded fund markets are experiencing record inflows this year, and currently carry $6.6 trillion in assets according to Bloomberg. While markets have been dominated by passive ETF investment vehicles, actively managed ETFs are taking larger and larger portions of the market pie.

In 2021, active managed products took three times their share of the $500 billion invested in ETFs according to Bloomberg. Of biggest note, active funds are being introduced at twice the rate of passive funds, and have currently increased their market share by a third this year already. Fund issuers have launched 156 actively managed products so far this year, compared to the 77 passive funds launched.

ETFs were initially built around the concept of indexing and all of the benefits that following indexes provided. Yet the pandemic has changed investing patterns to an extent, and that has meant that asset managers are taking advantage of equity conditions that are highly beneficial to an active management style.

“Historically, people have thought about ETFs as being indexed-based,” said Todd Rosenbluth, head of ETF and mutual fund research at CFRA Research. “Then Ark became a household name, and then investors came to realize that not only were those products worth looking at, but so were others.”

Year-to-date there has been $62 billion inflows into actively managed ETFs, which translates into 12% of total flows going into a portion of the market that only accounts for 4% of assets.

With a rule change in 2019 that made launching ETFs easier and allowed for new structures of ETFs that could conceal the strategies utilized, stockpickers are flourishing in current market climates. Included in that group is Wall Street player T. Rowe Price, which currently carries 5 actively managed ETFs.

Passive funds still rule the roost, with $11 trillion in AUM between mutual funds and ETFs, and are predicted to be half of all registered U.S. assets carried in funds within five years. Active funds closed the end of 2020 at a 13% gain over the year prior with $13.3 trillion AUM and continue to take increasingly larger percentages of market share.

“We are going to see the percentage of assets in actively managed ETFs continue to climb higher,” said Rosenbluth at CFRA. “They are going to continue to have the opportunity to punch above their weight.”

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