Capital Group Sees Surge in Active ETF Demand
Firm’s ETF assets cross $34 billion as advisors seek tax-efficient vehicles
Capital Group, the $2.6 trillion asset manager known for its American Funds mutual funds, says it's seeing healthy growth in its recently cultivated line of business: ETFs.
The Los Angeles-based company's line of exchange-traded funds has grown to 21 since their launch in early 2022, with assets crossing $34 billion, as financial advisors increasingly seek active management in a tax-efficient format.
“We are one of the fastest growing ETF issuers,” Capital Group's ETF Director Scott Davis said Wednesday in New York.
The firm recently launched seven new ETFs, and its total of 21 funds includes nine fixed income funds, 11 equity funds and one multi-asset fund. This expansion comes in response to advisor demand for additional portfolio building blocks, according to Davis.
The rapid growth in active ETFs is not limited to Capital Group. Holly Framsted, head of global product strategy and development at Capital Group, noted that the entire ETF market is seeing significant inflows, outpacing last year’s figures in just half the time.
“It's $124 billion in active ETF asset flows, year-to-date, through the end of June, versus $125 billion in active ETF flows for all of last year,” Framsted said. “What that tells us is that investors are increasingly looking to the ETF when they're looking to put money to work, and demonstrating an appreciation for the fact that they can now access active management in this vehicle relative to passive management.”
Fixed Income Focus
Framsted highlighted that fixed income is an area where active management in ETFs is gaining particular traction.
“[Seventy-eight percent] of the assets in fixed income mutual funds are actively managed, just 12% of the assets in fixed income ETFs are actively managed,” Framsted said, suggesting room for growth in actively managed fixed income ETFs.
“What that tells me is investors in fixed income, in particular, have been slower to adopt the ETF vehicle because they wanted active management and they were less willing to accept indexes in that particular asset class,” Framsted said.
Framsted noted that growth for active fixed income flows in the first half of the year are higher than each of the previous four full years.
“We're seeing an acceleration in adoption of the vehicle, and adoption of the strategies, and overall uptake in the market, which is obviously exciting for us,” Framsted said. “Financial advisors, who are often the unit stewards of individuals' assets, are understanding and adopting the structure that is delivering tax efficiency for their clients.”
The firm’s core bond ETF, Capital Group Core Plus Income ETF (CGCP), has been one of its fastest-growing products this year, Davis said. According to etf.com data, it's pulled in $1.1 billion so far this year.
Source: etf.com
Multi-Asset and Global Strategies
Capital Group’s multi-asset ETF, Capital Group Core Plus Income ETF (CGBL), has also seen strong demand, surprising the firm with its growth. Davis noted that the fund, which follows a 65/35 stock-bond allocation, is approaching $642 million in assets.
The company’s global growth ETF, Capital Group Global Growth Equity ETF (CGGO), has become its third-largest ETF, defying expectations for this category. Framsted attributed this success to the addition of active management in areas previously dominated by passive strategies.
Addressing the current high levels of “cash on the sidelines,” Framsted emphasized the importance of staying invested: “If you sit on the sidelines for too long, you will miss a good chunk of the move in the equity markets.”
Framsted added that while political uncertainty and high interest rates are contributing factors, the firm is focused on providing long-term investment solutions to help clients navigate market volatility.
Capital Group's largest fund is the $9.1 billion Capital Group Dividend Value ETF (CGDV) which has gained 16.6% this year.