Active ETFs Grabbed 25% of 1st-Half Flows: Report
Morningstar report highlights shifting investor preferences amid ETF industry's record month.
Actively managed ETFs grabbed a quarter of all flows in the first half or 2024, despite representing only 7% of industry assets, according to a recent Morningstar report.
This shift in investor preference comes as the ETF industry experienced a record-breaking month in June.
Flows into Morningstar's top-rated funds—those with the highest performance expectations—outpaced all others over the second quarter as well as for the year-to-date and one-year periods. These top-rated, lower-cost funds typically put out by big issuers like iShares, now hold $6.4 trillion, or 65% of total ETF assets.
Money is pouring into active funds as investors attempt to beat broader markets. This is happening even as active funds charge higher fees and studies cast doubt on the funds' abilities to top those that track indexes like the S&P 500 or Dow Jones Industrial Index. JPMorgan Chase & Co. said in a recent report that actively managed ETFs accounted for 76% of new issues over the past year.
"US active managers have seen immense interest in these products so far in 2024 and the direction of travel, at the moment, only appears to be one way," Morningstar senior product manager Syl Flood said in an emailed statement. "Passive ETFs continue to collect their normal billions, but active strategies is where the action is.”
BlackRock’s iShares brand shattered its monthly ETF flow record in June 2024, attracting $57 billion globally, according to the report. This figure surpassed the company’s previous monthly high of $43 billion, achieved in November 2023.
The surge in inflows was primarily driven by U.S.-domiciled vehicles, which accounted for 80% of the total, the report states. Irish-domiciled funds contributed 16%, with the remaining 4% spread across nine other domiciles.
Year-to-date performance has also been strong for key iShares products, with the iShares Core S&P 500 ETF (IVV) collecting $28 billion in the first half of 2024, making it the second-highest ETF globally during this period, according to the report.
U.S. Equity Dominance
The success of U.S. equity-focused products played a significant role in iShares’ record-breaking month, the report said. This trend aligns with the broader market, as evidenced by the performance of Vanguard’s S&P 500 ETF (VOO), which led all global ETFs with $43 billion in inflows for the first half of 2024.
The report notes that the combined assets of the S&P 500 strategy worldwide, including mutual funds, now stand at $1.6 trillion across nine domiciles.
BlackRock’s record-breaking month reflects the continued strong performance of the ETF industry, particularly in actively managed strategies.
"Its strong growth can be attributed, in part, to its prevalence in the model portfolios being utilized by financial advisers in the US—including those iShares constructs and markets itself," Flood wrote.