While Active Mutual Funds Languish, Active ETFs Thrive


While investors have been slowly dumping their actively managed mutual fund exposures, active exchange traded funds, on the other hand, continue to gain inflows.

Active fund managers have suffered from a combination of underperformance and rising outflows, the Financial Times reported.

Global investors have yanked a net $640 billion out of actively managed mutual funds over the first half of 2022, according to Morningstar data, reflecting a sharp reversal from the $943 billion in inflows over 2021. After accounting for the broad market pullback over the year, outflows have caused total assets to decline 19.6% to $23.9 trillion.

In comparison, the actively managed ETF universe still attracted a net $51.8 billion over the same period, maintaining its 2021 momentum. Even after accounting for market losses over 2022, aggregate active ETF assets under management have still increased 1.2% to $385 billion. Global active ETFs have even brought in $431 billion over the first half of 2022, but it was still less than a third of 2021’s total inflows.

“There has been a general trend away from mutual funds towards equity ETFs more broadly, and active ETFs have very much participated in that move,” Chris Gooch, head of ETF and index sales, Emea at Citi, told the Financial Times.

Elisabeth Kashner, director of global fund analytics at FactSet, argued that the momentum behind active U.S.-listed ETFs was “structural.”

For instance, the so-called ETF rule that the Securities and Exchange Commission first introduced in 2019 helped pave the way for increased competition in the industry by cutting the red tape necessary for bringing new ETFs to market.

Additionally, the SEC approved non-transparent and semi-transparent ETF investment vehicles in 2019 as well, which brought in active fund managers that were previously loath to reveal their secret sauce under the transparent nature of the ETF structure.

We have also witnessed an increasing amount of traditional fund houses converting their mutual fund strategies into the ETF wrapper in face of increasing client demand, with recent converts like Dimensional Fund Advisors and JPMorgan, among others.

“There are a lot of asset managers that have determined that the ETF is the path forward, the way of growing their business or slowing the decay of their business, so there has been a big push from the management side,” Kashner told the Financial Times.

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