Active-ETF interest rising as investors seek protection

The sector has seen rapid growth, but it's set to gain traction in more valuable sectors

Active-ETF interest rising as investors seek protection

The rise in passive investing has seen trillions in assets moving out of active funds and into passive ETFs and index-based mutual funds in recent years. But that could be changing this year, if a new survey of advisors and institutional investors is any indication.

Conducted by Brown Brothers Harriman, the poll found a large increase in interest in active management of invested risk, reported CNBC. In particular, 54% of survey respondents said they would use active ETFs in emerging markets, while 45% said they would do so in international developed markets.

“It's about downside protection," Ryan Sullivan, a vice president of global ETF services at Brown Brothers Harriman, told CNBC. “There seems to be a growing interest in actively managed equity products in an ETF wrapper.”

According to Morningstar, international equity and emerging-market funds collectively attracted US$239 billion in fund flows last year. Active ETFs have also shown rapid growth, albeit from a small base, with the majority of interest recently being focused in fixed income funds with total-return or low-duration strategies.

“The segment has continued to set records in terms of growth, but it still represents only 1% of the broader market,” said Sullivan. “I think we may see a spike in demand for actively managed ETFs this year.”

The swing away from pure passive plays isn’t just benefitting purely active strategies. A recent study by FTSE Russel found that Canadian advisors are increasingly interested in smart-beta strategies, where assets surpassed US$1 trillion in December and now make up about a fourth of the whole ETF market.

To distance themselves from market-cap weighting, some fund producers have taken to creating their own indexes. That includes WisdomTree Asset Management, a pioneer of smart-beta investing strategies, and BlackRock, which has announced plans to launch equity sector ETFs that track indexes created by robots with machine learning.


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