Three Key Takeaways:
1. Active ETFs attracted nearly $100 billion in 2024, surpassing passive ETFs.
2. Capital Group and BlackRock are expanding their active ETF offerings.
3. Active ETFs are becoming integral in investor portfolios, challenging mutual funds.
What Happened?
New exchange-traded funds (ETFs) are debuting at an unprecedented rate in 2024, with a significant tilt towards actively managed offerings. Morningstar data reveals 236 ETF launches so far this year, with 166 actively managed. By comparison, 2023 saw only 155 combined active and passive ETF debuts at the same time.
These active ETFs, which allow fund managers to pick stocks, pulled in nearly $100 billion in the first five months of 2024. Capital Group announced seven new active ETFs, bringing its total to 21 with a market cap of $29 billion, while BlackRock, known for its passive iShares ETFs, has doubled its active offerings over the past year.
Why It Matters?
The surge in active ETFs highlights a significant shift in investor preferences. Investors are increasingly seeking actively managed funds for their potential to outperform traditional passive index funds. Todd Rosenbluth from VettaFi notes that while most investments still reside in low-cost index ETFs, the new active products are gaining traction.
The $26 trillion mutual fund industry, far larger than the $9 trillion ETF market in the US, is seeing its dominance challenged. Active mutual funds lost about $150 billion, while active ETFs gained nearly $100 billion through May 2024. This shift could signal a broader trend where ETFs might eventually eclipse mutual funds, especially in active strategies.
What’s Next?
Expect more financial advisers to incorporate active ETFs into their client portfolios. As Jessica Tan from BlackRock points out, active ETFs are becoming essential in investor strategies globally. Companies like REX Shares and Tuttle Capital Management plan to introduce single-stock ETFs, offering high exposure bets on popular stocks like GameStop and AMC.
As active ETFs continue to attract substantial inflows, the mutual fund industry might need to innovate to retain its market share. Investors should watch for more ETF launches and shifts in capital flows that could impact stock prices, market dynamics, and investment strategies.
