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Here's Why Active ETFs Are Gaining Popularity: YTD Winners
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Actively managed ETFs have become increasingly popular among investors, as they seek higher returns and more active portfolio management in response to the uncertainty in the market. The trend marks a shift away from passive index-tracking funds, which have dominated the ETF landscape for years. Many investors are now turning to active funds managed by experienced professionals, who have the potential to deliver better returns through skillful stock picking, specific strategies and market timing.
Although active funds account for less than 6% of total assets in the $7 trillion ETF market, they have received approximately 30% of total ETF flows so far this year, according to Bloomberg Intelligence, as quoted on Wall Street Journal. That comes after a blockbuster year for active ETFs in 2022, when they amassed roughly 14% of total flows.
One of the most popular active ETFs this year is JPMorgan’s Equity Premium Income ETF (JEPI - Free Report) , which has quadrupled its assets under management since the start of 2022. The JEPI currently holds about $25.31 billion in assets. The fund represents defensive equity portfolio that employs a time-tested, bottom-up fundamental research process with stock selection based on our proprietary risk-adjusted stock rankings. The fund charges 35 bps (which is lower given the standard of active management) and yields 11.30% annually.
Let’s find out why active ETFs have gaining so much popularity.
Access to the Complex ETF Strategies
The popularity of active funds this year highlights their resilience in the face of research that has shown actively managed stock funds underperforming broad indexes over long periods in the United States. This also shows how ETFs are enabling individual investors to access more complex trading strategies.
Winning strategy is very important as despite uncertainties surrounding inflation and the impact of higher interest rates on companies, some active strategies have fallen out of favor, such as State Street’s SPDR Blackstone Senior Loan ETF, while others, such as Cathie Wood’s ARK Innovation fund, have faced outflows.
Falling Expense Ratios
Investors should note that active funds are arguably expensive as these involve research expenses associated with the manager’s due diligence and additional cost in the form of a wide bid/ask spread beyond the expense ratio. But the difference in expense ratios between active and passive (management/investing) has been reducing of late given a spurt in launch of lower-cost products.
With 1087 ETFs traded on the U.S. markets, Active Management ETFs have total assets under management of $393.43 billion. The average expense ratio is 0.70% per etf.com. BlackRock Ultra Short-Term Bond ETF (ICSH - Free Report) charges as low as 8 bps while Gabelli Commercial Aerospace & Defense ETF (GCAD - Free Report) and Gabelli Financial Services Opportunities ETF (GABF - Free Report) charge net expense ratio of 0.00%.
Edgy Macroeconomic Dynamics
The global economic landscape is currently affected by a variety of factors such as geopolitical disputes, elevated inflation leading to higher interest rates, fluctuations in commodity prices, the possibility of a U.S. recession, and a global banking crisis with U.S. regional banks under significant strain.
Investors and fund managers have no other option than be prudent with the changing dynamics of the market. And in order to do so, several investors opted for active ETFs. An actively-managed ETF does have a benchmark index but managers may alter sector allocations, market-time trades or shift from the index constituents if they consider appropriate, per investopedia.
Winning ETFs in Focus
Below we highlight a few winning active ETFs of this year.
Image: Bigstock
Here's Why Active ETFs Are Gaining Popularity: YTD Winners
Actively managed ETFs have become increasingly popular among investors, as they seek higher returns and more active portfolio management in response to the uncertainty in the market. The trend marks a shift away from passive index-tracking funds, which have dominated the ETF landscape for years. Many investors are now turning to active funds managed by experienced professionals, who have the potential to deliver better returns through skillful stock picking, specific strategies and market timing.
Although active funds account for less than 6% of total assets in the $7 trillion ETF market, they have received approximately 30% of total ETF flows so far this year, according to Bloomberg Intelligence, as quoted on Wall Street Journal. That comes after a blockbuster year for active ETFs in 2022, when they amassed roughly 14% of total flows.
One of the most popular active ETFs this year is JPMorgan’s Equity Premium Income ETF (JEPI - Free Report) , which has quadrupled its assets under management since the start of 2022. The JEPI currently holds about $25.31 billion in assets. The fund represents defensive equity portfolio that employs a time-tested, bottom-up fundamental research process with stock selection based on our proprietary risk-adjusted stock rankings. The fund charges 35 bps (which is lower given the standard of active management) and yields 11.30% annually.
Let’s find out why active ETFs have gaining so much popularity.
Access to the Complex ETF Strategies
The popularity of active funds this year highlights their resilience in the face of research that has shown actively managed stock funds underperforming broad indexes over long periods in the United States. This also shows how ETFs are enabling individual investors to access more complex trading strategies.
Winning strategy is very important as despite uncertainties surrounding inflation and the impact of higher interest rates on companies, some active strategies have fallen out of favor, such as State Street’s SPDR Blackstone Senior Loan ETF, while others, such as Cathie Wood’s ARK Innovation fund, have faced outflows.
Falling Expense Ratios
Investors should note that active funds are arguably expensive as these involve research expenses associated with the manager’s due diligence and additional cost in the form of a wide bid/ask spread beyond the expense ratio. But the difference in expense ratios between active and passive (management/investing) has been reducing of late given a spurt in launch of lower-cost products.
With 1087 ETFs traded on the U.S. markets, Active Management ETFs have total assets under management of $393.43 billion. The average expense ratio is 0.70% per etf.com. BlackRock Ultra Short-Term Bond ETF (ICSH - Free Report) charges as low as 8 bps while Gabelli Commercial Aerospace & Defense ETF (GCAD - Free Report) and Gabelli Financial Services Opportunities ETF (GABF - Free Report) charge net expense ratio of 0.00%.
Edgy Macroeconomic Dynamics
The global economic landscape is currently affected by a variety of factors such as geopolitical disputes, elevated inflation leading to higher interest rates, fluctuations in commodity prices, the possibility of a U.S. recession, and a global banking crisis with U.S. regional banks under significant strain.
Investors and fund managers have no other option than be prudent with the changing dynamics of the market. And in order to do so, several investors opted for active ETFs. An actively-managed ETF does have a benchmark index but managers may alter sector allocations, market-time trades or shift from the index constituents if they consider appropriate, per investopedia.
Winning ETFs in Focus
Below we highlight a few winning active ETFs of this year.
Valkyrie Bitcoin Miners ETF (WGMI - Free Report) – Up 127%
Spear Alpha ETF (SPRX - Free Report) – Up 28.9%
ARK Fintech Innovation ETF (ARKF - Free Report) – Up 27.6%
Simplify Volt RoboCar Disruption and Tech ETF (VCAR - Free Report) – Up 24.1%
Fidelity Blue Chip Growth ETF (FBCG - Free Report) – Up 23%