Rise of Active ETFs a Persistent Topic at Inside ETFs Conference

The Inside ETFs conference brought together the movers and shakers of the industry at one event, and one persistent topic that arose was the rise of active ETFs. As the battle for investor capital continues between passive and active management strategies, it’s the latter that could be seeing more investor demand in the ETF space.

It’s a case of if you (actively managed mutual funds) can’t beat them (ETFs), join them.

“Actively managed mutual funds that have been seeing outflows for years have a new plan: convert to an ETF,” a CNBC report noted. “The SEC recently approved a number of new types of active ETF structures that do not require daily disclosures of the fund holdings — that will likely attract more money into ETFs and out of mutual funds. The BBH report notes that US investors ranked active as the number one strategy (tied with low volatility ETFs) they would like to see more of in the market. 62% of US investors plan to increase their exposure to actively-managed ETFs.”

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.