Active ETFs Ring Up Record Year

Fund companies have brought 309 actively managed exchange-traded funds to market so far in 2023, breaking the previous record of 305 set in 2021. 

The new wave of active management, however, doesn’t look like the old as the new active ETFs favor more of a quantitative-driven approach than a traditional stock-picking one, according to Robby Greengold, a strategist at Morningstar Research Services.  

As of Wednesday, 75% of all U.S. ETF launches this year were active, the highest since that type of fund started trading in 2008, according to data from Morningstar Direct. The figure compares with 64% in 2021, the previous recordbreaking year.  

And yet Greengold said in an interview that index funds have continued to gain market share in the combined category of ETFs and mutual funds. He also pointed out that the new crop of active ETFs doesn’t herald a return to traditional stock picking.  

“There’s certainly some degree of cannibalization, and asset managers expect that when offering the same strategy through a different wrapper that’s in high demand, these ETFs can be charging lower fees,” he said.  

Actively Managed Funds 

More than 1,200 actively managed ETFs with $442 billion in assets now trade in the U.S., according to etf.com data. About half of those assets sit in funds issued by just three asset managers: JPMorgan, Dimensional Fund Advisors and First Trust. 

Greengold said Dimensional, which has nearly $100 billion in assets in active ETFs, shows that investors and advisors are moving toward a quantitative, factor-based approach away from traditional stock picking. 

“Dimensional is not doing much stock picking; this is really mostly factor-based investing,” Greengold said, adding that the rise in active ETFs hasn't been a victory for stock pickers. 

Dimensional’s largest fund is the $20 billion Dimensional U.S. Core Equity 2 ETF (DFAC), which focuses on smaller-cap companies. The strategy reflects research pioneered by Kenneth French and Eugene Fama showing that shares of smaller companies outperform those of larger companies' long term.  

Contact Gabe Alpert at [email protected]