Critics who claimed actively managed ETFs would fail are being proved wrong again. Both asset flows and investor behavior are showing that these vehicles are in a major upswing.
In a survey of 500 asset managers and financial professionals, the 2023 “Global ETF Survey” from Trackinsight noted that active strategies continue to build momentum.
“In the Americas, 80% of respondents stated they would be more inclined to invest in an active strategy packaged as an ETF rather than a mutual fund, supporting the trend of mutual fund to ETF conversions.”
Advisors and investors are flocking to active ETFs because of lower costs, tax efficiency and greater transparency. These vehicles tend to have lower fees than active mutual funds. Moreover, active ETFs have increased flexibility with intraday liquidity and can use options strategies.
When it comes to mutual fund to ETF conversions, Fidelity Investments has been among a bevy of busy firms.
In a regulatory filing from earlier this year, Fidelity disclosed its plan to convert six actively managed mutual funds with around $14 billion in assets into ETFs. Among the six funds are the Fidelity International Enhanced Index Fund (FIENX) and Fidelity Large Cap Core Enhanced Index Fund (FLCEX). All six will be converted on November 17, 2023.
For asset managers, fund conversions to an ETF shell are an attractive move that allows firms to maintain a fund’s investment strategy and historical track record along with its shareholder base. It’s also an easier pathway into the ETF market than launching new funds from scratch.
The race to convert mutual funds to ETFs is also a race to prevent assets from leaving—since introducing active ETFs helps ensure investment firms with active mutual funds keep advisors and their clients from bailing.
According to the Trackinsight report, 61% of professional investors in the Americas said they have replaced active mutual funds with ETFs.
During the past five years, the number of actively managed ETFs has ballooned, climbing every single calendar year. In 2018, only 62 active ETFs were introduced. Fast-forward to 2023, when a whopping 290 have already launched, surpassing the number of entries in each of the past two years. And there’s still five more months left in the year.
That demonstrated growth in the volume of active ETFs doesn’t happen without growth in assets, another important metric to advisors and investors, and over the past five years, the assets in actively managed ETFs have also climbed every calendar year. In 2018, assets in active ETFs topped $59 billion. Through mid-2023, these funds have amassed $416 billion.
After a disappointing 2022, financial markets have rebounded. And it’s helped the entire ETF industry, especially active funds, to continue an impressive story of growth.