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