Active ETFs Poised to Dominate: etf.com Survey

As the bull market for equities continues to look long in the tooth, actively managed ETFs are starting to draw more attention among financial advisors and investors as a potential diversification play away from pure market beta.

According to the results the ETF Report: Global Investor Survey, 75% of financial advisors say they are somewhat-to-very interested in increasing allocations to actively managed ETFs over the next six months.

The survey of more than 250 advisors found that active ETFs currently make up 25% of client portfolios on average. That weighting by far lags the 44% average allocation by index ETFs, but is ahead of 24% allocated to active mutual funds and 11% allocated to index mutual funds.

When asked which categories they would like to see more active ETFs involved, the popular responses were multi-asset, dividend income, equity, and fixed income.

The equity side is a natural and obvious area of appeal against the backdrop of a stock market that has been pushing into elevated valuation levels for the past few years, but fixed income might be the bigger opportunity for ETF issuers.

Active ETFs Begin to Draw More Attention

Ryan Jackson, senior manager research analyst at Morningstar, said as the Fed continues to cut rates the opportunities for actively managed ETFs will expand.

“Over the past few years, since the rate hikes, passive fixed income has been a very attractive place to be, but that has flipped on its head over the past couple of years,” he said. “I imagine the bond category is going to get more concentrated in active strategies.”

This lines up with advisors surveyed by etf.com.

When asked to identify the types of approaches to bond management they are most interested in, the most popular responses were traditional bond pickers, tilts based on duration, and tilts based on credit quality.

Nate Geraci, president of The ETF Store in Overland Park, Kans., sees supply and demand for active ETFs running in near harmony.

“A primary reason active ETFs are generating so much attention right now is because that’s where issuers are focusing,” he said. “The biggest names in asset management are finally offering their best portfolio managers and flagship investment strategies in an ETF wrapper.”

Geraci said traditional asset managers, including mutual fund companies, have become “significantly more aggressive in launching ETFs.”

“This is a situation where I believe supply is driving demand,” he said. “In other words, the sheer number of active ETFs coming to market is providing investors with more choice, which is actually resulting in greater demand.”

For further insights and to read the entire Global Investor Survey, click here.