While the vast majority of the ETF universe tracks passive index-based strategies, the actively managed ETF segment is gaining a larger following and could pick up steam.
According to Morningstar Direct, actively managed ETFs attracted net inflows of $23 billion last year through October, which already exceeded the full-year total over 2017 by 48%, Wealth Management reports.
There are currently 266 actively managed U.S.-listed ETFs with $71.6 billion in assets under management, which is a drop in the bucket compared to the U.S. ETF industry’s total $3.6 trillion in assets under management, according to XTF data.
Actively managed ETFs come with all the benefits of the traditional beta-index ETF structure, such as lower fees, no investment minimums, higher liquidity and tax efficiency. However, actively managed ETFs are not passive index-based ETFs, which means investors need to have a high conviction for the active management team behind the strategies.
“Investors should be aware that these are active strategies,” Ben Johnson, director of global ETF research for Morningstar, told Wealth Management. “Just because you deliver it in a new package doesn’t mean you provide antigravity boots. Some do well; some less well.”
Nevertheless, Johnson highlighted the fact that investors will pay less on actively managed ETF strategies than the traditional mutual fund counterparts.