Active ETFs Gain Speed as Investors Seek New Strategies
- Goldman Sachs and Morningstar executives discuss the rapid growth in the active ETF market.
- Active ETFs now comprise 8% of the $10 trillion ETF ecosystem, growing at 20% annually.
- Transparency and flexibility are driving investor interest amid market volatility.
Active ETFs are moving from novelty to mainstream investment vehicles, according to industry leaders from Goldman Sachs Group Inc. (GS) and Morningstar Inc. (MORN) during a LinkedIn event Wednesday.
Bryon Lake, chief transformation officer at Goldman Sachs Asset and Wealth Management, and Morningstar CEO Kunal Kapoor discussed the evolution of exchange-traded funds during their "Investors First: Navigating the Rise of Active ETFs in a Competitive Market" webinar, which explored how these investment vehicles are transforming portfolio management.
Active ETF Insights
Lake shared that while active ETFs represent just 8% of the $10 trillion ETF market, they're expanding at a 20% annual rate, "dramatically outstripping their weighting within the overall space," as investors embrace both the wrapper and active management strategies.
The rapid growth of active ETFs represents a shift in how investors are accessing professional management while maintaining the benefits of the ETF structure, creating new opportunities for both investment firms and clients seeking alternatives to traditional index-based approaches, Lake told attendees during the Morningstar-hosted LinkedIn event.
Lake emphasized that while ETFs have grown to approximately a third of the combined mutual fund and ETF market, there remains room for expansion, especially in the active space where most mutual fund assets still reside.
Technology Drives Investment Innovation
The conversation highlighted how technology has revolutionized investment access, with Lake describing ETFs as possibly "the first fintech" that has evolved to address increasingly complex market needs.
Lake explained that investment personalization is driving the trend, noting that "customization at scale" is the direction the industry is heading, whether through varied ETF capabilities, direct indexing or separately managed accounts with lower investment thresholds.
Both executives noted that current market volatility has demonstrated the resilience of ETF structures, with Lake reporting that ETFs comprised approximately 36% of trading volume during the recent market volatility.
Kapoor pointed out that investor concerns about portfolio transparency—once considered a major hurdle for active management in the ETF structure—have largely been addressed as the industry has evolved and investors have grown to value increased information access.
Future ETF Drivers
Looking forward, Lake predicted three main drivers of future innovation: continued growth in active ETFs, expansion of separately managed accounts with direct indexing capabilities and increased retail access to alternative investments, particularly private markets.
Lake highlighted the importance of private market access, explaining that "companies are staying private for longer" because they can "access private markets and raise capital" without needing to pursue an IPO, creating demand for investment vehicles that can provide exposure to these opportunities.
The executives concluded that these trends ultimately benefit investors through increased personalization options, though Lake cautioned that the explosion of choice also means investors need help "finding the signal through the noise" when navigating the expanding ETF landscape.
