Displaying items by tag: active etfs

Exchange-traded funds (ETFs) have revolutionized the asset management landscape over the past decade, and their rise shows no signs of slowing. As Oliver Wyman's 2023 report, "The Renaissance of ETFs," underscores, ETFs have become the single most disruptive trend in the industry. By the end of 2022, total ETF assets under management (AUM) in the US and Europe reached a staggering $6.7 trillion, propelled by a 15% compound annual growth rate (CAGR) since 2010.

While passive ETFs currently dominate the market, holding 59% of assets (at the end of 2022), Oliver Wyman predicts a surge of active strategies. The report posits that the ETF landscape is entering a "next stage of growth," fueled by the emergence of innovative active ETFs.

Several factors contribute to the enduring appeal of ETFs in the US. Compared to mutual funds, ETFs enjoy lower investment minimums, typically lower expense ratios, and attractive tax advantages, making them highly accessible and cost-effective options.

Oliver Wyman projects this momentum to continue, with ETF growth remaining in the 13-18% annual range for the next five years. By 2027, they expect ETF AUM in the US and Europe to reach an impressive $12-$16 trillion, solidifying their position as a powerful force shaping the future of asset management.

Finsum: Active ETFs are poised to fuel the growth of this popular investment vehicle, according to global consultancy Oliver Wyman.

Active ETFs represent a fraction of the overall market of investable assets, but the future looks very promising given current growth rates. This is evident through the bevy of new active ETF launches which will continue in 2024. Last year, 75% of ETF launches were active. Additionally, according to Cerulli, 95% of ETF issuers have existing plans or are planning to launch active ETFs in the coming year. 

Some of these active ETFs will be conversions of active mutual funds, while others will follow a dual-class structure. In terms of why active ETFs are gaining traction, the biggest factor is the tax benefits of the ETF structure. In contrast, many investors in active mutual funds may find themselves with a tax bill if the fund takes profits on winning positions.

Additionally, the fee structure of ETFs is much simpler while it also leads to more transparency for investors. This appeals to many investors who are then able to hedge risk more effectively.  Currently, most of the focus on issuers is for transparent, active ETFs with 59% of launches falling in this category. One caveat is that active ETFs have failed to penetrate the institutional market as 80% of assets currently come from retail investors.

Finsum: Active ETFs had a strong year in 2023 and even more launches are planned for 2024. Here are the major factors driving the category’s growth. 

Entering 2024, active fixed income investors are grappling with a unique mix of risks and opportunities given recent developments in inflation, yields, and rates. Insight Investment collected thoughts from BNY Mellon’s fixed income portfolio managers to get their thoughts on the coming year. 

Adam Whiteley, the portfolio manager of the BNY Mellon Global Credit Fund, sees a continuation of 2023 trends in credit markets in 2024. He believes developed economies will avoid a recession. However, the major focus is on determining where markets are in the credit cycle. This will have implications for identifying risks and the best sectors within the fixed income universe.

The portfolio managers of the BNY Mellon Global Short-Dated High Yield Bond Fund have a positive bias for high-yield and short-duration debt. Yet, they believe that investors will have to take credit analysis and cash flow modeling more seriously, given they expect a slight increase in the default rate. Overall, they still see the high-yield debt market as being stable and strong despite these risks due to better credit quality and strong balance sheets.

In terms of emerging market (EM) debt, the firm has a cautious outlook in the near-term despite more upside for EMs. The biggest variable is likely to be developed market and economic performance. EM corporates tend to have strong balance sheets so are well positioned for any slowdown. 

Finsum: BNY’s active fixed income managers shared their thoughts and outlook for 2024. Overall, they see some risks in the coming year, but the overall market remains in a good place. 

AllianceBernstein launched 4 new fixed income ETFs. With these new issues, AllianceBernstein now has 7 active fixed income ETFs and a total of 12 ETFs. The firm entered the ETF market in 2022 with the Ultra Short Income ETF and the Tax-Aware Short Duration ETFs. These now have assets of $587 million and $290 million, respectively.

Two of the new ETFs - the Tax-Aware Intermediate Municipal and Tax-Aware Long Municipal - invest primarily in municipal bonds and have a 28-basis points expense ratio. Its other fixed income ETF launches are the Corporate Bond ETF and the Core Plus Bond ETF. The Corporate Bond ETF invests primarily in US dollar-denominated corporate debt issued by US and foreign companies. The Core Plus Bond ETF will invest primarily in corporate bonds and mortgage and asset-backed securities. These ETFs have an expense ratio of 30 and 33 basis points, respectively. 

As of December 1, active fixed income ETFs had a total of $169.8 billion in assets and $30.1 billion of net inflows according to Morningstar. In contrast, passive fixed income ETFs had total assets of $1.3 trillion and net inflows of $169.1 billion. The higher ratio of net inflows to assets for active fixed income indicates that the category is making up ground with passive fixed income.

Finsum: AllianceBernstein is launching 4 new active fixed income ETFs. Overall, active fixed income is much smaller than passive fixed income, but the gap is shrinking.

A sizzling rally in stocks and bonds is leading investors to scoop up ETFs. In November, the iShares 20+ Yr. Treasury Bond ETF (TLT) was up 9.9%, while the Morningstar Global Markets Index, a gauge for global equities, was up 9.2%. 

The major driver of the rally is increased optimism about interest rates given positive news regarding inflation while the economy continues to avoid a recession. This means the biggest gains were found in interest-rate sensitive sectors which have been among the most battered since the Fed embarked on tightening policy early in 2022. 

There were also $110 billion inflows into US ETFs with $77 billion going into equities and $31 billion into fixed income ETFs. This was a 1.6% increase from last month and total ETF flows should easily exceed $500 billion, setting a new record. Fixed income ETFs saw a 2.2% growth rate on a monthly basis and inflows are up 14.3% compared to last year, exceeding equities’ growth rate of 5.6%. 

Active ETFs continue to grow and account for $21 billion of inflows. YTD, total inflows are $116 billion which exceeds $90 billion in 2022. Some areas of growth in the segment are alternative assets and inverse funds. 

Finsum: 2023 is set to be a record year in terms of ETF inflows. Fixed income ETFs and active funds are two of the biggest areas of growth.