Defined Outcome ETFs Drive Active ETF Inflows

Wealth Management Editor

Jul 04, 2024

Reviewed by: etf.com Staff

Edited by: James Rubin

Surging inflows into actively managed ETFs has triggered a host of knee-jerk reactions pitting active against passive investing.

While active will always have a place in asset management, a different category of active funds is driving the latest gains.

As discussed in the latest Advisor Upside podcast episode, the big winners in the space are defined outcome and buffered strategy ETFs that employ options trading to limit the downside and cap the upside performance.

The fact that BlackRock Inc., the world’s largest asset manager, entered the space this month with the iShares Large Cap Max Buffer Jun ETF (MAXJ) that offers 100% downside protection for just 50 basis points is a full-throated endorsement of the category.

Defined Outcome ETFs Leading

In his latest research report of ETF flows, Matt Bartolini, head of SPDR Americas Research at State Street Global Advisors, showed active ETFs accumulating more than $108 billion this year through May, representing 33% of all ETF inflows despite representing just 7% of all ETF assets.

To be sure, the active ETF inflows spread across fixed income and traditional active equity strategies, but the boost is coming from the defined outcome and buffered strategies.

“On the equity side it’s not so much on alpha generation as it is about outcome-oriented solutions,” Bartolini said on the podcast.

“I mean this in the nicest way possible, they’re only active in name only,” he added.

Asked if counting defined outcome ETFs as active qualifies as data deception, Bartolini explained, “it’s not deception, it just requires a double-click on the data and an acknowledgement that active in a broad term is used for seeking above market returns or seeking a specific outcome.”

Jeff Benjamin

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Jeff Benjamin is the wealth management editor at etf.com, responsible for coverage related to the financial planning industry. This includes writing, hosting podcasts, webinars, video interviews and presenting at in-person events.

Jeff is a veteran journalist with more than 30 years’ experience covering the financial markets. He has won more than two dozen national and regional awards for his reporting. He most recently worked as a senior columnist at InvestmentNews where he wrote about investment products and strategies, as well as the broader financial planning industry. Prior to that, Jeff worked as an analyst at Cerulli Associates where he researched and wrote reports on the alternative investments industry. Jeff also worked as a money management reporter at Dow Jones Newswires, where he covered the mutual fund industry.

Based in North Carolina, Jeff is a former Marine and has a bachelor’s degree in journalism from Central Michigan University.

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