Displaying items by tag: active etfs

Actively managed U.S. bond funds saw a resurgence in 2024, drawing in substantial investment after two years of outflows, with industry leaders like Pacific Investment Management Co. leading the charge. Morningstar Direct data revealed that six of the ten bond mutual funds with the highest net inflows were actively managed, pulling in a combined $74 billion.

In total, actively managed bond funds attracted $261 billion over the year, the highest level since 2021, despite a bond market selloff triggered by the Federal Reserve’s first rate cut in four years. Core and income-focused bond strategies were the biggest winners, appealing to investors seeking stability in an uncertain interest-rate landscape. 

With Treasury yields hovering near 5% and credit spreads historically tight, investors are weighing the risks and rewards of bonds versus other asset classes. While the Pimco Income Fund remained the largest actively managed bond fund with $26.8 billion in inflows, the Vanguard Total Bond Market Index Fund led all funds with $33.4 billion. 

Finsum: Uncertainty around fiscal policy and potential inflationary pressures under the new administration could shape how bond markets evolve in 2025.

ETFs are generally more tax-efficient than mutual funds, potentially making them a better vehicle for delivering alpha in taxable accounts. Active ETFs combine the adaptability of active management with the tax advantages of ETFs, as only 16% of active ETFs have distributed capital gains in the past five years, compared to 53% of active mutual funds. 

The ability to defer capital gains through in-kind redemptions can significantly reduce tax costs, allowing for better compounding of returns over time. Tax efficiency plays a critical role, especially in strategies like active equities, where minimizing taxable distributions has a notable impact on performance. 

Evaluating active ETFs involves assessing the manager’s skill, the market’s alpha opportunities, and the investor's ability to select and stick with quality managers. Incorporating active ETFs into a portfolio requires careful consideration of the fund's exposure, risk profile, costs, and long-term performance.

Finsum: Thinking of tax as alpha is really the correct quantitative approach that gives a holistic view of your portfolio.

BlackRock is set to achieve a record year in net inflows, driven by the popularity of its active ETFs and their integration into model portfolios, according to CFO Martin Small. The company reported over $360 billion in net flows during the first three quarters, with $220 billion coming in Q3 alone, boosting its total assets under management to $11.5 trillion. 

The iShares Bitcoin Trust also saw unprecedented success, amassing $50.8 billion in assets within six months of its January launch. BlackRock’s strategy of embedding its ETFs into its expansive model portfolio business has significantly enhanced its flows, a tactic that has resonated with model builders seeking active exposure and cost efficiency. 

State Street Global Advisors’ research underscores the growing adoption of model portfolios, with 39% of advisers' assets now allocated to these investment tools, further fueling BlackRock’s momentum.

Finsum: There is certainly a nesting doll affect to these technological innovations, but the swell of popularity of active options can somewhat be attributed to macro signals being easier to read.

Actively managed fixed income ETFs have gained remarkable traction, with over $100 billion in inflows in 2024 and growing demand expected for 2025. These ETFs, favored for their flexibility and expertise, have helped the ETF industry surpass $300 billion in fixed income assets this year. 

During VettaFi’s Market Outlook Symposium, 51% of advisors expressed plans to increase their exposure to actively managed funds next year, compared to only 20% for index-based options. 

Core, core-plus, and multi-sector active ETFs, such as Fidelity’s Total Bond ETF (FBND) and iShares’ Flexible Income Active ETF (BINC), have outperformed comparable passive funds. Active ETFs like JPMorgan’s Core Plus Bond ETF (JCPB) balance investment-grade bonds with speculative assets to enhance returns.

Finsum:  With strong performances and growing advisor interest, active fixed income ETFs are poised to remain a dominant force in fixed income investing.

Actively managed ETFs combine the flexibility of active management with the tax efficiency of ETFs, making them a compelling option for taxable portfolios. Unlike mutual funds, ETFs often use in-kind redemptions to minimize taxable capital gains, helping investors defer taxes and achieve greater compounded returns over time. 

While tax efficiency is a significant advantage, investors should also evaluate the manager’s skill, market opportunities, and the cost-effectiveness of these strategies when selecting active ETFs. 

Incorporating active ETFs into a portfolio can be a strategic way to balance the potential for alpha with reduced tax drag, particularly in equity strategies where minimizing distributions is key. 

Finsum: A thoughtful approach to selecting active ETFs can enhance after-tax returns and align portfolios with long-term investment goals.