Actively managed ETFs are there but they only make up a slim sliver of the overall ETF universe. However, things could be beginning to change as global investors are taking a closer look at the active ETF space.
According to the 7th annual Brown Brothers Harriman & Co. and ETF.com survey of ETF investors, 57% of global ETF investors plan to raise their exposure to actively managed ETFs over the next 12 months.
Brown Brothers Harriman & Co. attributed the sudden uptick in interest for active ETFs to a series of “green lights” for new active ETF strategies in the U.S. as more powerhouse active managers eye the active ETF space in light of newly approved non-transparent ETF offerings that could help hide their secret sauce.
The actively managed ETF category remains a small slice of the over ETF pie, but the increased regulatory approval of non-transparent ETFs could help active ETFs compete. According to ETFdb data, there are 295 U.S.-listed actively managed ETFs, with just $101 billion in assets under management, compared to the overall $4.5 trillion U.S. ETF market.
However, different regions exhibit varying priorities for the ETF space. Active funds sit atop the list of strategies U.S. ETF investors would like more of in 2020. On the other hand, European investors want more ESG offerings while investors in the Greater China region are seeking low volatility ETF strategies.
Overall, ETF adoption appears to be gaining momentum with no signs of slowing down anytime soon. About 69% of global ETF investors had intentions to increase ETF allocations in the next 12 months or an increase of 8 percentage points over last year’s survey.
“Across the globe, ETF market growth shows no signs of slowing,” Shawn McNinch, Global Head of ETF Services at BBH, said in a note. “In 2019, investors found creative—and differentiated—ways to use ETFs to drive results. That said, regional nuances exist in terms of ETF usage and managers need to be aware of these as they build a global ETF offering.”
“This survey takes the pulse of the ETF industry,” Heather Bell, Managing Editor at ETF.com and Editor of ETF Report, said in a note. “This year’s survey shows the continuing growth of ETFs overseas, and the increasing importance of environmental, social and governance-based strategies.”
The survey also revealed that global institutional investors preferred ETFs with adequate assets under their belt, with only about 12% of investors willing to buy a new ETF with less than $25 million in assets under management.
Smart beta is beginning to take over. About 40% of global investors have between 11% and 20% of their portfolio in smart beta, or 7 percentage points higher from last year.
During periods of heightened volatility, investors pointed to fixed-income ETFs as their go-to investment tool to diversify a portfolio.
For more information on the ETF industry, visit our ETF Performance Reports category.