The Rise of Active ETFs: A New Era for Asset Managers
Increasing Demand for Active ETFs
The growth of active ETFs continues to gain momentum, with asset managers of all sizes disrupting an industry traditionally dominated by passive investing. In the third quarter, there were 68 active fund launches compared to 49 indexed fund launches, indicating a shift towards active management, according to CFRA. This trend is expected to continue, with several more active funds set to launch, potentially surpassing the number of new listings from the same period last year.
Appealing Features of Active ETFs
Passive funds still dominate the ETF market due to their lower costs and tracking of popular indexes like the S&P 500. However, recent market volatility and the desire for income generation with reduced price swings have sparked investor interest in active products. The newly launched BlackRock Advantage Large Cap Income ETF (BALI) exemplifies this trend, combining active management for dividend stock selection with an options overlay to enhance income generation.
Success of Income-Focused and "Defined Outcome" Funds
Income-focused products, such as JPMorgan's JEPI and JEPQ, have attracted significant assets this year, demonstrating that active managers can win over clients without necessarily outperforming the market. Despite underperforming the S&P 500, JEPI remains popular among investors. This highlights the appeal of active funds that prioritize specific outcomes, such as income generation, rather than attempting to beat broad market indices.
Active ETFs Finding Traction in Various Markets
Active ETFs are gaining traction not only in income-focused strategies but also in fixed income and international equities. Investors may be more willing to pay for active management in markets that are less transparent or require specialized expertise. This shift suggests a growing recognition of the value that active managers can bring in navigating complex investment landscapes.
Regulatory Changes and the Future of Active ETFs
The growth in active funds can be attributed, in part, to regulatory changes. The easing of restrictions around ETF launches by the SEC in 2019 has prompted investors to shift from active mutual funds to active ETFs with similar strategies. Asset managers are seizing this opportunity to cater to client demands and expand their offerings within the ETF vehicle.
Potential Benefits for Asset Managers
If active ETFs prove to have staying power, they could help asset managers mitigate the financial impact of the ongoing trend of investors moving from expensive mutual funds to low-cost passive funds. Additionally, the active fund space may attract high-profile managers, such as Jeremy Grantham's GMO, which recently filed an application for its first ETF. This shift towards active ETFs represents the next iteration of recognizing the capabilities of the vehicle, bringing true active management to the forefront.
In conclusion, the rise of active ETFs signifies a new era for asset managers, offering opportunities to meet investor demands for differentiated sources of income and growth. The industry's response to this trend, along with regulatory changes and the potential benefits for asset managers, indicates a promising future for active ETFs in the evolving investment landscape.
Active ETFs: A Game-Changer for New Business Formation
Active ETFs: A Growing Trend
The rise of active ETFs is reshaping the investment landscape, with asset managers disrupting the traditional dominance of passive investing. The third quarter saw 68 active fund launches, surpassing the 49 indexed fund launches, according to CFRA. This trend is set to continue, potentially outpacing the number of new listings from the previous year. This shift towards active management could have profound implications for new businesses.
Appeal of Active ETFs
While passive funds remain prevalent, active products are gaining traction due to their potential for income generation and reduced price swings amid market volatility. The BlackRock Advantage Large Cap Income ETF (BALI) exemplifies this trend, combining active management with an options overlay to enhance income generation. This shift in investor preference could influence the strategies of new businesses entering the investment space.
Success of Outcome-Focused Funds
Income-focused products like JPMorgan's JEPI and JEPQ have attracted significant assets, demonstrating that active managers can win over clients without necessarily outperforming the market. This suggests that new businesses could benefit from prioritizing specific outcomes, such as income generation, rather than trying to beat broad market indices.
Active ETFs Gaining Ground in Various Markets
Active ETFs are finding traction not only in income-focused strategies but also in fixed income and international equities. This indicates a growing recognition of the value of active management in navigating complex investment landscapes, a trend that new businesses could leverage.
Regulatory Changes and Active ETFs
Regulatory changes have contributed to the growth in active funds, with the SEC's easing of restrictions around ETF launches prompting a shift from active mutual funds to active ETFs. This development presents an opportunity for new businesses to cater to client demands and expand their offerings within the ETF vehicle.
Active ETFs: A Potential Lifeline for Asset Managers
If active ETFs prove to have staying power, they could help asset managers offset the financial impact of investors moving from expensive mutual funds to low-cost passive funds. The active fund space could also attract high-profile managers, signaling a promising future for active ETFs and the opportunities they present for new businesses in the evolving investment landscape.
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