Active ETFs' Glow May Linger in 2024: Morningstar

Seeking to beat a market largely concentrated on 7 stocks, fund issuers load up on active strategies.

Jeff_Benjamin
|
Wealth Management Editor
|
Reviewed by: etf.com Staff
,
Edited by: Mark Nacinovich

The bull market run that has been essentially carried along by a concentrated collection of seven stocks raises questions about the sustainability of the rally as we move into the new year. 

From there, it’s a short leap over to actively managed strategies and a heavier focus on alpha. Thus, while the poster child of concentrated beta takes the form of the Invesco QQQ Trust (QQQ), which has gained more than 55% in 2023, ETF issuers are already bracing for the next market cycle. 

According to a new report from Morningstar, strategic beta ETFs hit the skids in 2023 while active strategy ETF launches shot toward the stars. 

There were 26 strategic-beta ETF closures in 2023 and just seven launches. 

“Fewer ETF issuers are incentivized to launch new and innovative funds in the now-mature strategic-beta ETF market,” Morningstar research analyst Mo’ath Almahasneh wrote. 

“Downward fee pressure is pushing smaller providers out of the space, while higher-priced active or alternative ETFs provide new and potentially lucrative opportunities for emerging ETF issuers” he added.  

Active ETFs 

Almahasneh believes this trend will continue in 2024, further reducing the number of strategic-beta ETF launches and possibly increasing the number of closures. 

“New money will also be drawn to active and alternative ETFs as alpha-seeking investors are increasingly choosing to allocate to these funds instead,” he wrote. 

That outlook is supported by the trend in active ETF launches in 2023. Fueled by the success of covered-call ETFs and defined-outcome exchange-traded funds, issuers launched more than 370 active ETFs during the year. 

And if success is measured by asset flows, it would be difficult to dispute the triumph of the $30.6 billion JPMorgan Equity Premium Income ETF (JEPI). 

The wildly popular covered-call strategy, which gained nearly 10% in 2023, led all active ETFs during the year with more than $12.8 billion worth of inflows. 

Contact Jeff Benjamin at [email protected] and find him on X at @BenjiWriter        

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.