ETF Edge: The Active Vs. Passive Debate | ETF Trends

Capital Group’s head of ETFs, Holly Framsted, and ETF Trends’ Dave Nadig weigh both sides of the active vs. passive management debate with CNBC’s Bob Pisani on this week’s “ETF Edge.”

With the bulk of the money in ETFs still going into passive strategies, there is the question of whether the future holds an opportunity for getting more into the index space. Many more assets under management are potentially available, which is a good argument for the possibility.

For Framsted, she believes there’s a bit of a compounding effect. “The bulk of the money in ETFs, I believe, are going to core solutions.” With that in mind, she states how a majority of those have been indexed. Really, Framsted believes it’s investors speaking to where and how they want to allocate money vs. the investment style.

In regards to Capital Group’s legacy of delivering an above-market return for their clients, Framsted makes it clear that active management is at the heart of their organization, which is why their entrance into the ETF marketplace is squarely focused on active management, as opposed to index management.

As far as fund flows are concerned, Nadig points out that money has been going to core, with no real dramatic shift in the past week, unlike last year. “About 10% of the money is going into actively managed products. That’s about what we saw last year.”

Nadig continues, noting how many investors have been allocating, staying in place. There hasn’t been much to show that people are fleeing or buying the dip. It’s been consistent, which is a healthy look.

Venturing Outside The Core

With the core ETFs out, it does seem like there’s room to move beyond, and comfortably. As Framsted explains, the newly launched Capital Group ETF suite will cover a majority of the asset allocation building block services, but not all of them. Ideally, the feedback from clients will allow for a response to investor needs over time.

As far as directly looking at the active vs. passive debate, naysayers may think they’re correct in thinking it’s better to stick in the index fund. For Framsted, while she acknowledges there are a lot of valid ways to invest, Capital Group has a strong legacy of delivering superior investment results for their clients. There may be a place for both, but Framsted finds that the company has been providing what it needs to prove the value of active.

Nadig chimes in, noting that there are over 800 actively managed ETFs, making up nearly a quarter of the industry.

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