In March, inflows into active ETFs reached a new monthly record of $26 billion. It’s somewhat counterintuitive given the strong performance of global equity markets, which tend to favor flows into passive funds. 

For the first quarter, total inflows into active ETFs reached $64 billion, a new quarterly record. YTD, 32% of ETF inflows have been into active ETFs, despite accounting for only 7% of total ETF assets. Based on the current pace, active ETF inflows should exceed $200 billion this year, a more than 50% increase from last year’s record of $130 billion.

A key factor behind the growth of active ETFs is a desire to reduce exposure to mega cap tech stocks, which account for an increasingly large share of popular market-cap, weighted indices. And this has only been exacerbated in Q1, with these stocks tacking on double-digit gains. 

Additionally, there are concerns that financial markets could get choppier given uncertainty around monetary policy and the economy. This is leading many market watchers to believe that we are shifting to a new market environment, which should favor lagging stocks and stock-picking strategies over passively holding indices. According to Noah Damsky of Marina Wealth Advisors, “We think a more active approach is appropriate as we anticipate more choppy markets with upcoming rate cuts by the Fed. We’re making active tilts in our portfolio to laggards such as health care, and over time we anticipate increasing exposure to utilities as rate cuts draw nearer.”

Finsum: Inflows into active ETFs reached new records in March and the first quarter. Active ETFs account for only 7% of total assets. So, it’s impressive and telling that 32% of ETF inflows were into active ETFs in Q1.