Active ETFs Pulled in Record $26B Inflows in March
Making up just 7% of ETF assets, active funds took in 32% of inflows in Q1.
While actively managed strategies have gained appeal during times of economic stress and market downturns when it's easiest to justify disembarking from the market performance train, the trend for the past few months has seen investors piling into active ETFs despite the solid performance from passive indexes.
According to a report from State Street Global Advisors, global stock indexes gained 7.8% over the past three months, marking the best first-quarter performance since 2019 and the second-best first-quarter gain in a decade.
At the same time the market was lifting all those low-cost index ETFs to new levels, investors and financial advisors have been pouring money into active ETFs, including a record $26 billion in March that contributed to the record $64 billion in the first quarter, according to the report.
To put these inflows in context, consider that in 2024 active ETFs have accounted for 32% of all ETF inflows, which is the highest rate ever, despite representing just 7% of all ETF assets, State Street said.
Matthew Bartolini, head of SPDR Americas Research at State Street in Boston, said active ETFs have been gaining momentum for the past nine months. If the pace of $16 billion worth of average monthly inflows continues total active ETF inflows this year could top $200 billion, shattering last year’s record of $130 billion, he said
Investors Bulk up on Active ETF Exposure
Speculation abounds as to what might be driving the appeal of active ETFs, but one popular theory is a desire to diversify beyond the Magnificent Seven companies that have been carrying index performance for the past few years.
“A big part of active management is managing exposure to the stock market based on market conditions and trends,” said Gregory Corneille, founder of Choice Wealth Management in Lawrenceville, Georgia.
“With stocks up for five straight months, some passively allocated investors are realizing how much they have missed out by having fixed income exposure during a time of strong stock market momentum,” he added. “We specialize in active investment management strategies.”
Noah Damsky, principal at Marina Wealth Advisors in Los Angeles, is leaning on active over passive strategies as a defensive move.
“We think a more active approach is appropriate as we anticipate more choppy markets with upcoming rate cuts by the Fed,” he said. “We’re making active tilts in our portfolio to laggards such as health care, and over time we anticipate increasing exposure to utilities as rate cuts draw nearer.”
Even advisors who are not jumping on the active ETF bandwagon can recognize the drivers.
“I am not part of the movement, but I understand the appeal, which I believe has to do with the run up in the markets,” said Chris Mankoff, chief portfolio strategist at JLT Wealth Partners in Plano, Texas.
"Due to the indexes achieving all-time highs, an argument could be made that now is the time that active outperforms passive in what I've heard called a stock pickers market,” he added.
