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Activist ETF Inflows Reach Record Levels as State Street Anticipates $260 Billion in Inflows

June 6, 2024
minute read

Following a recent surge in inflows, actively managed exchange-traded funds (ETFs) appear set for a record-breaking $260 billion in new investments this year. Investors are increasingly moving beyond traditional benchmarks, embracing alternative strategies like options selling and inexpensive quant trades.

Data from Bloomberg Intelligence reveals that portfolio managers have consistently invested in the active sector for 50 straight months, with a notable $22 billion allocated in May alone. Riding this wave of momentum, State Street Corp., the fifth-largest ETF manager, forecasts that inflows into actively managed ETFs might nearly double last year’s record of $140 billion. Morningstar Direct also predicts that the number of active ETF offerings will surpass passive ones within the next three to five years.

This shift highlights a significant transformation within the ETF industry, which has traditionally been seen as dominated by simple index-tracking funds. The latest data indicate that actively managed ETFs are becoming an increasingly prominent feature of the investment landscape.

Matthew Bartolini, head of SPDR Americas research at State Street Global Advisors, which manages approximately $1.4 trillion in ETF assets, noted in a recent client note that the current pace of inflows into active ETFs is unprecedented. He explained that investors are now seeking actively managed ETFs for returns that outperform benchmarks and for targeting specific market outcomes based on their risk tolerance.

Despite the impressive inflows, the active ETF sector is still in its early stages. This year, active funds have attracted about $107 billion, accounting for 32% of all ETF inflows. However, they still represent only 7% of the roughly $9 trillion total ETF market, according to Bloomberg Intelligence data. Nevertheless, as both large and small investors look to diversify their portfolios, actively managed ETFs are expected to gain further traction.

The inflows are not just benefiting traditional bond and stock pickers. Leading the charge are firms like Dimensional Fund Advisors and JPMorgan Asset Management, which together hold nearly 40% of all active ETF assets. Dimensional Fund Advisors is known for its systematic funds, while JPMorgan has attracted investors with innovative products like ETFs that utilize options overlay strategies to generate additional yield.

State Street’s Bartolini emphasized that the interest in actively managed ETFs is driven by their potential to deliver higher returns and more tailored investment outcomes compared to passive funds. This appeal is particularly strong among investors looking to navigate volatile markets or capitalize on specific economic trends.

Active ETFs offer a dynamic approach to investing, allowing portfolio managers to adjust holdings based on market conditions and strategic insights. This flexibility is a significant draw for investors seeking to optimize performance and manage risks more effectively.

Dimensional Fund Advisors and JPMorgan Asset Management exemplify the diversity of strategies within the active ETF space. Dimensional’s systematic funds leverage quantitative models to drive investment decisions, while JPMorgan’s options overlay strategies offer a means to enhance yield and manage downside risk.

As the ETF industry evolves, the growth of actively managed funds suggests a broader acceptance of more sophisticated investment strategies. This trend is likely to continue as investors increasingly prioritize performance and customization over traditional index-following approaches.

In conclusion, the rise of actively managed ETFs marks a pivotal shift in the investment landscape, driven by substantial inflows and growing investor demand for alternative strategies. As these funds continue to attract assets, they are set to play a more significant role in the broader ETF market, offering investors new opportunities for growth and diversification. The future of ETFs will likely be defined by this blend of active and passive strategies, catering to the diverse needs and preferences of a broadening investor base.

Editorial Board
Eric Ng
John Liu
Editorial Board
Bryan Curtis
Adan Harris
Managing Editor
Cathy Hills
Associate Editor

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