Active ETFs are dominating the ETF market this year, even though they are still outnumbered by passive funds, according to Matt Camuso, ETF strategist at BNY Mellon Investment Management.
The growing number of active ETFs indicates the interest and demand asset managers and investors have for the product, Camuso said in an interview.
“Passive ETFs still get the lion’s share of the activity, but active ETFs now account for 25% of the flow and the trend is going higher,” he said. “This year continued the momentum that was started previously, making it easier to bring active ETF products to the market.”
The growing inflows in active ETFs “really is a sign of asset managers’ and investors’ demand for the product,” Camuso said. BNY Mellon now offers 16 ETFs, nine of which are actively managed.
According to a recent Fidelity report, while the stock market in general jumped up and down this year, “ETFs made another splash (in the third quarter). A relatively strong $107 billion in quarterly net ETF flows nearly matched the second quarter, which was a bounce-back quarter from a slow start to the year. That’s helped put ETFs back on pace to bring in a big annual haul, with year to date net flows at $328 billion."
Much of that momentum is behind actively managed ETFs, Fidelity said, accumulating more than $82 billion, or 25%, of the total net flows so far this year, which is an annual record for the category. Active ETFs represent just 6% of total ETF assets under management, but nearly 80%, or 114, of the 146 new ETFs that were launched in third quarter.
CFRA Research, an independent research organization for the financial industry, reported in September there was a “flurry” of new ETF offerings. For the month, there were a total of 57 ETF launches, which was “a record for this year and handily beating the 53 that arrived on the market in September 2022.”
“Active ETFs have been punching above their weight for some time now, and we see no sign of it abating,” Camuso said. ETFs in general are popular because of the diversification and tax advantages.
Large-cap blend ETFs, which include a mix of value and growth equity investments, are proving the most popular this year, Camuso added. At the same time, ETFs are modernizing the bond market, especially for institutional investors, offering up to 5% returns on a risk-free basis.