Markets have been off to a volatile start this year, with the Fed indicating a reduction in its balance sheet, the December inflation report coming in at a 7% increase year-over-year, and multiple interest rate increases being projected for the year. ETF flows halfway into January reflect the more defensive mentality that investors and advisors are taking, including a movement into actively managed funds.
So far, January has seen $29.35 billion in flows into ETFs, with the vast majority allocated to basic, broad funds — vanilla ETFs have brought in $17.57 billion so far this year. While this isn’t a surprise, where other flows are funneling to reflects the changing sentiments of investors and advisors.
Growth has seen an outflow for the year so far, while value ETFs are experiencing an influx, pulling in slightly over $3 billion in flows, or 10.5%. Whether this trend will hold or not remains to be seen, but so far, investors are betting bigger on a return to value stocks as inflation soars and interest rate increases loom.
Advisors and investors also seem to be allocating their money to strategies that might hedge during times of market volatility, with the next-highest allocations going into equally weighted ETFs (8.8%), followed by actively managed ETFs (8.4%). While equal weighting can help mitigate some volatility by diversifying exposure, these funds still follow their indexes and must ride the waves as markets move.
Active management offers the potential of a flexible defensive play while markets orient and digest inflation and as interest rate increases loom. Advisors are looking for strategies that can help find income, and active ETFs might be one solution.
“In 2021, we saw consistent pressure from advisors to find income for their client portfolios,” said Dave Nadig, ETF Trends’ director of research. “We’re still seeing that pressure — advisors are looking towards almost any solution to the dual problem of playing defense while generating income. That means everything from dividends to options overlay strategies.”
Active management firm T. Rowe Price currently offers eight actively managed ETFs with a variety of strategies for investors to align their risk exposures and investment goals. These include the T. Rowe Price Dividend Growth ETF (TDVG), the T. Rowe Price Ultra Short-Term Bond ETF (TBUX), and the T. Rowe Price Total Return ETF (TOTR).
The firm brings a bevy of experience and research to its products, with portfolio managers averaging over 20 years in investing each, as well as over 400 investment professionals dedicated to researching companies within ETFs.
For more news, information, and strategy, visit the Active ETF Channel.
