Record inflows. Record fund launches. Record assets. If active money management is in decline, someone forgot to tell the ETF industry.
“Historically, people have thought about ETFs as being indexed-based,” said Todd Rosenbluth, head of ETF and mutual fund research at CFRA Research. “Then Ark became a household name, and then investors came to realise that not only were those products worth looking at, but so were others.” Investors are showing an unusual willingness to make concentrated bets, from riding the meme-stock madness to following the kind of thematic vision laid out by Wood.They have poured $62bn into active ETFs year-to-date. That is 12% of total flows going to a slice of the market with only 4% of assets. In the rush to tap the burgeoning demand, issuers have now launched 156 actively managed products in 2021, compared with 77 passive funds.
Now, the passive juggernaut is slashing industry costs, opening up investing to the masses and forcing discretionary traders to adapt or die. Active launches may be booming, but most of the cash flooding US stocks is still destined for big, cheap funds that do nothing but track the market. Critics say the rapidly swelling index industry is blowing bubbles in stock markets, weakening corporate governance and more. And in some ways, it can also hit returns.
The main advantage stock pickers enjoy over their passive peers is more flexibility in deploying their cash. That is something they have been able to bring to ETFs for years — Wood’s first fund launched in 2014 — but it was a rule change in 2019 that paved the way for the current jump in activity.
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