By Andrew Broadhead via

While passive exchange-traded funds (“ETFs”) represent a significant majority of the capital flowing into the US$3.4 trillion global ETF industry, actively managed and strategic beta (rules-based) ETFs could be poised to quickly gain ground on their passive peers.

Actively managed and strategic beta ETFs are among the most popular types of strategies being launched by ETF providers. However, this news isn’t all bad for passive ETFs.

A rising tide is lifting all boats

The 2018 calendar year was rough on many investors, and the volatility that defined the period negatively impacted the ETF market. In fact, global inflows decreased by approximately 20% year-over-year from 2017.

Still, 2018’s US$516.1 billion in investor inflows was a significant amount, and this was the second-best year on record for inflows into the industry.1 So, even if passive ETFs’ market share actually declined, in absolute terms, interest in passive ETFs appeared to still be healthy.

The relationship between the different ETF strategies is … complicated

The shift into active and strategic beta ETFs is hardly the first time the relatively young ETF industry has undergone significant change.

Current trading volumes reflect an ETF market dominated by large professional investors, quantitative strategies and institutional investors. This is a far cry from the industry’s early days, when it was dominated by smaller, individual investors.

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