Is 2020 The Year Active ETFs Surpass $110B in Assets?

The passive versus active funds debate continues in 2020, and with the introduction of potentially market-changing products like non-transparent active ETFs, will the latter surpass $110 billion in assets under management (AUM) this year?

There are trends that David Mann, Head of Capital Markets, Global Exchange-Trade Funds (ETFs), Franklin Templeton Investments identified in a Seeking Alpha post that could affect this AUM target:

  • 80% of active ETF assets are in fixed-income funds
  • Fixed-income ETFs increasing in popularity, accounting for almost half of the $334 billion of ETF inflows
  • The passage of the new ETF Rule essentially states that operationally, there are no differences between active and index funds, which could help level the playing field

“So, how do I get to a figure of $110 billion in my prediction? Currently, active fixed-income ETF assets under management (AUM) sits at $77 billion,” wrote Mann. “Flows basically doubled in 2017 and again in 2018, before plateauing last year at $21 billion, matching the year prior. If we simply match again and there is no market appreciation in that asset class, they are already at $100 billion. I think we should likely exceed that easily, hence the extra $10 billion in my prediction. That gets us to $110 billion of active fixed-income ETF assets.”

Click here to read the rest of Mann’s predictions for 2020 in Seeking Alpha.

An Alternative ETF Option

Last December, Franklin Templeton announced the expansion of its active ETF lineup with the addition of its first alternative ETF, Franklin Liberty Systematic Style Premia ETF (FLSP). The fund seeks to deliver absolute return (positive returns in rising or falling markets) by employing a multi-asset, long/short strategy.

FLSP is actively risk-managed, seeking a target annualized volatility of 8 percent, and targets four style factors: quality, value, momentum and carry.

“We are thrilled to bring our first alternative ETF to the market,” said Patrick O’Connor, global head of ETFs for Franklin Templeton. “FLSP is unique due to our intentional focus on building an alternative investment while seeking to minimize any correlation to traditional equity and fixed income asset classes. We find investors need tools to help mute or dampen volatility and to find more consistent returns across market cycles or in times of market stress. FLSP looks to address those challenges—and many others—in a low-cost, liquid ETF.”

Getting Active in Fixed Income

Franklin Templeton announced the expansion of its active fixed income ETF lineup earlier this year with the addition of the Franklin Liberty U.S. Core Bond ETF (NYSEArca: FLCB).

FLCB seeks to provide investors with diversified core fixed income exposure. FLCB is an active ETF that seeks total return through bottom-up fundamental bond selection and top-down sector.

“We believe active management is critical for achieving long-term returns and managing investment risk, particularly in multi-sector investment grade fixed income,” said Patrick O’Connor, global head of ETFs for Franklin Templeton. “We are thrilled to launch FLCB, which can serve as a core, building block allocation in an investor’s portfolio.”

Visit Franklin LibertyShares’ Capital Markets Corner for insights on ETF investing and follow Franklin LibertyShares on Twitter: @libertyshares.

For more market trends, visit ETF Trends.