Active Funds to Add Market Share in 2023, Study Says

Strategy gaining popularity among ETF investors is set to lure additional assets.

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Reviewed by: Shubham Saharan
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Edited by: Shubham Saharan

Actively managed funds are poised to scoop up market share as institutional asset owners hunt for returns in gyrating markets, according to a report by Cerulli Associates.  

A little over one-quarter of institutional asset owners indicated they would increase their allocation to active equity strategies over the next two years, according to a survey of 200 institutional asset owners conducted by the Boston-based research firm. Meanwhile, 20% of respondents surveyed in the latter half of 2022 stated they would augment their fixed income strategy allocations during the same period.  

The potential switch to active management comes as exchange-traded funds using the strategy have continued to pick up assets in 2023 as larger index funds have posted lackluster returns so far this year. The largest and oldest U.S.-listed ETF, the SPDR S&P 500 ETF Trust (SPY), lost $11.4 billion in February alone, as its underlying index dipped 2.6% during the month on continued fears of sticky inflation and high interest rates.  

About one-third of all exchange-traded products are actively managed, with $396 billion in assets under management, according to ETF.com data. Still, they make up a small but growing fraction of the $6.9 trillion ETF industry. Active ETFs have pulled in a total of $16.8 billion through Feb. 22. Almost 48% of actively managed ETFs had positive inflows compared to roughly 45% of passively managed ETFs.   

According to the report, the gap between active and passive fund assets narrowed to $1.2 trillion at the end of last year, compared with a nearly $3 trillion gap a year prior. 

Institutional investors want actively managed portfolios, the research shows, with nearly one-third stating they expect to increase their allocations to U.S. equity. According to Cerulli researchers, nearly one-third of institutional investors indicated they would add exposure to U.S. equity ETFs and mutual funds, while 21% of respondents said they would do the same for global equity allocations.  

International equity ETFs have gathered $27.8 billion in the first two months of 2023, according to ETF.com data, with the most popular international equity funds including the JPMorgan BetaBuilders Europe ETF (BBEU) and the iShares Core MSCI Emerging Markets ETF (IEMG). The two funds have collectively gathered $9.6 billion year to date, ETF.com data shows.  

 

Contact Shubham Saharan  at[email protected]   

Shubham Saharan is a markets reporter at etf.com. Before joining the company, she reported for Bloomberg and the Financial Times. Saharan is a graduate of Barnard College of Columbia University.