In an article for Citywire, David Stevenson discusses whether active fixed income or equity ETFs will displace mutual funds. Already, passive equity funds have replaced mutual funds as the preferred vehicle for investors and institutions given lower costs, more transparency, and better returns over long time periods. 

On the fixed income side, it’s a bit more challenging given that active funds have a track record of outperforming passive funds. In large part, this is because active funds have more latitude in terms of duration and credit quality that are not available to passive funds. 

However, Stevenson is skeptical that active ETFs will be able to completely replace mutual funds. He sees many active ETFs as being mutual funds in an ‘ETF package’ with a slightly lower fee. He is also skeptical that active fixed income will continue to outperform over the long-term. 

As evidence, he cites the lack of inflows into active ETFs despite a spate of launches over the past year. So far, active funds only account for 5.8% of assets under management, while passive makes up the rest. Of this, active fixed income ETFs have seen 9% of total bond flows, totaling only $8.5 billion, while passive fixed fixed income ETFs have seen $75 billion of inflows. 

Finsum: Active fixed income funds have performed well YTD but still are not seeing significant inflows despite a number of new issues in the past year.