Active ETFs Demand Rose on Fund Conversions

Falling global inflows last year didn’t cut appetite for active funds, BBH says.

RonDay
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Managing Editor
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Reviewed by: Ron Day
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Edited by: Ron Day

Nearly every investing professional added an actively managed exchange-traded fund to their portfolio last year, as mutual-fund-to-ETF conversions accelerated, a Brown Brothers Harriman survey found. 

The trend is expected to continue this year, with 82% of the 325 advisors, fund managers and institutional investors surveyed saying they will boost or maintain their active ETF investments. Last year, 92% of investors bought an active ETF, and nearly all of those were from either an index or active mutual fund, the survey found. 

More than 50 mutual funds with $65 billion in assets have converted from mutual funds to ETFs since the first one was completed, according to etf.com data.  

“The mindset has completely changed,” Shawn McNinch, Brown Brothers’ global head of ETFs, said in an interview regarding fund managers. “They need an active ETF in their arsenal.” 

Interest in active funds is growing, while at the same time, global ETF inflows have slipped after years of steady gains. Last year, $856 billion globally went into ETFs, down 29% from $1.2 trillion the year before, the survey reported, citing ETFGI data. McNinch said he doesn’t expect another $1 trillion of inflows this year. 

“A lot of investors are taking money out of the markets—they are being cautious,” he said. The survey found that the number of investors planning to boost ETF allocations actually declined 23%.  

McNinch said that despite tentativeness in the market, his New York-based firm, which helps launch ETFs, has been busy. The firm helped issue a record 120 ETFs, and so far this year has another 90 planned. He said they also helped manage three mutual-fund-to-ETF conversions. 

“That trend will continue,” he said.  

That caution is expressed in the survey’s finding that 40% of respondents said they will add short duration fixed income funds to their portfolios, and another 62% said they are “extremely or very interested in fixed income.” 

“They are looking at how they protect their nest eggs,” McNinch noted.  

 

Contact Ron Day at  [email protected] or follow him on Twitter at @RonDayETF  

Ron Day is Managing Editor at etf.com. He joined the company in October 2022 and previously served as editor and deputy managing editor.

Ron covered business and financial news at Bloomberg News for 20 years, working on the breaking news, technology, commodities, headlines and First Word teams. He was previously senior editor at ESG news outlet Karma Impact and filled the same role at Boundless Impact. He also covered a variety of beats at New Jersey daily papers including the Daily Record in Parsippany, the North Jersey Herald & News and the Asbury Park Press. Ron's freelance work has been published in AARP.com, Investopedia.com and BigThink.com.

Ron is an advocate and fan of literacy. He hopes to one day master his Telecaster, rather than the other way around. His wonderful family includes a 10-lb. malti-poo named Emmy.