Demand for Active ETFs Expected to Grow | ETF Trends

Demand for active ETFs is on the rise, with fund managers expecting adoption to grow, according to a survey from PwC.

After surveying more than 70 executives (primarily ETF managers) in Q1, PwC found that respondents expect demand for active ETFs to increase over the next few years, with 74% of U.S.-based ETF managers expecting “significant demand” over the next two to three years. Active ETFs manage around 5% of overall ETF AUM in the U.S., according to the survey report.

“While not a deterrent to market entry in Europe, the regulatory landscape regarding portfolio disclosure requirements continues to be an area of interest for active managers,” the report added.

The actively managed ETF industry grew across nearly all asset classes throughout 2022, with issuers launching 246 active ETFs in 2022 and flows into active ETFs representing roughly 14% of total industry inflows, according to the New York Stock Exchange.

“Active ETFs are really starting to grow and become a more prominent part of the market,” said Tim Coyne, head of ETFs at T. Rowe Price. “There’s a lot of demand for quality active strategies, but there wasn’t necessarily the supply of active strategies that were delivered through ETFs.”

During a panel on active management at Exchange, Coyne told attendees that active management has “historically played a major part in an advisor’s portfolio and will continue to do so,” but that “active ETFs have not been around” until recently.

“There’s a lot of categories that were not covered over the past several years. So, you’re seeing a lot of asset managers coming to the market,” Coyne said at the panel. “We’re seeing a lot of products across the core categories and extending out beyond the core, so there’s just more tools for advisors to use for portfolios.”

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Active ETFs can be a valuable tool for investors seeking alpha during volatile markets. They can enable investors to adjust their portfolio holdings in response to changing market conditions. They can also help investors build a diversified portfolio that’s better suited to their investment goals and risk tolerance, and potentially generate higher returns over the long term than passive ETFs.

It should be noted, however, that not all active managers are created equal, and only a handful can provide alpha, regardless of market conditions. Active managers with greater resources and greater scope benefit from economies of scale, which can often translate to better returns.

As part of its lineup of active exchange traded funds, T. Rowe Price offers a suite of actively managed fixed income ETFs, including the T. Rowe Price QM U.S. Bond ETF (TAGG), the T. Rowe Price Total Return ETF (TOTR), the T. Rowe Price Ultra Short-Term Bond ETF (TBUX), the T. Rowe Price U.S. High Yield ETF (THYF), and the T. Rowe Price Floating Rate ETF (TFLR).

“Active managers can reposition the portfolio toward favored names when they are temporarily trading at lower levels,” said VettaFi’s head of research Todd Rosenbluth.

T. Rowe Price has been in the investing business for over 80 years and conducts field research firsthand with companies, utilizing risk management and employing a team of experienced portfolio managers carrying an average of 22 years of experience.

For more news, information, and analysis, visit the Active ETF Channel.