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  5. How investors are using active ETFs

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How investors are using active ETFs

Global ETF Survey 2020

Active and smart beta lead the way

The Global ETF Study 2020 shows that active and smart beta ETFs are expected to grow faster than passive funds in the next two-to-three years. 

This trend could accelerate in the wake of the Covid-19 outbreak. Active ETFs, for example, have the flexibility to trade outside of their normal rebalancing period, which means portfolio managers can buy or sell securities to reflect a change in market view at any time. Smart beta funds are also able to maintain a more diversified exposure compared to market cap weighted index funds. These characteristics can make a big difference when unexpected market events take place.

Benefits of active

Active and smart beta funds are growing in popularity as investors increasingly come to see ETFs as tools to help them tackle a range of issues in portfolio construction and asset allocation. 

Investors particularly like how active strategies provide effective access to different outcomes and specific investment criteria, such as environmental, social and governance factors.

An active or smart beta approach also has the potential to boost long-term returns and to mitigate the risks faced by index funds.

The reasons why investors choose active ETFs

 

Using active ETFs

While investors look at all the costs incurred by active ETFs, such as transaction costs related to portfolio rebalancing, trading costs and creation/redemption costs—they should also consider any participation in security lending schemes used to offset costs.

An active ETF’s exposure to liquid and tradeable underlying securities is also crucial, as this will allow the cost of creating and redeeming shares to be low, and the ability to provide intra-day pricing to be high. 

Other important consideration are the investment criteria used to select securities, the risk management tools that the strategy uses, any tracking error considerations that are in place, plus the trading expertise of the provider—including access to the secondary market.

Top considerations when choosing an active ETF

 

Allocations favour active

Investors are increasing regional exposure to emerging markets and China, and find the best opportunities in fixed income in emerging market bonds, high yield bonds and corporate bonds.

Emerging markets offer strong long-term growth potential for equity investors, while emerging market bonds, high yield bonds and corporate bonds offer attractive yields compared to traditional high quality developed market bonds.

Shifting allocations favour strategies that can filter out the risks inherent in market-cap weighted indices, or that can use proprietary research to focus on the highest quality companies and issuers.

Rising use of active ETFs

 

 

 

Using active ETFs in a portfolio

Active ETF strategies are well suited to helping investors build out the strategic core of their portfolios. At the same time, an active strategy can be used to add alpha to a portfolio with core passive holdings, or to allocate tactically at different times through the market cycle.

The Global ETF Survey 2020 provides insights into investor attitudes towards active and smart beta funds. The  findings are analysed in detail by our research partner, Core Data Research.

Register to download the full report

Sustainable strategies are set to flourish

The Global ETF Survey 2020 highlights growing demand for sustainable investment strategies.

Learn more about the results

ETF Capabilities

J.P Morgan Asset Management offers a range active, smart beta and passive ETFs designed to help investors build stronger portfolios.

Find out more about our ETFs

Global ETF Study 2020

The full findings from the study provide further valuable insights into how ETFs are being used now, and how they may be used in the future.

Explore the study findings

This is a marketing communication and as such the views contained herein are not to be taken as an advice or recommendation to buy or sell any investment or interest thereto. Reliance upon information in this material is at the sole discretion of the reader. Any research in this document has been obtained and may have been acted upon by J.P. Morgan Asset Management for its own purpose. The results of such research are being made available as additional information and do not necessarily reflect the views of J.P. Morgan Asset Management. Any forecasts, figures, opinions, statements of financial market trends or investment techniques and strategies expressed are, unless otherwise stated, J.P. Morgan Asset Management’s own at the date of this document. They are considered to be reliable at the time of writing, may not necessarily be all inclusive and are not guaranteed as to accuracy. They may be subject to change without reference or notification to you. It should be noted that the value of investments and the income from them may fluctuate in accordance with market conditions and investors may not get back the full amount invested. Past performance and yield are not a reliable indicator of current and future results. There is no guarantee that any forecast made will come to pass. J.P. Morgan Asset Management is the brand name for the asset management business of JPMorgan Chase & Co. and its affiliates worldwide. To the extent permitted by applicable law, we may record telephone calls and monitor electronic communications to comply with our legal and regulatory obligations and internal policies. Personal data will be collected, stored and processed by J.P. Morgan Asset Management in accordance with our EMEA Privacy Policy www.jpmorgan.com/emea-privacy-policy.
 

This communication is issued in Europe (excluding UK) by JPMorgan Asset Management (Europe) S.à r.l., 6 route de Trèves, L-2633 Senningerberg, Grand Duchy of Luxembourg, R.C.S. Luxembourg B27900, corporate capital EUR 10.000.000.

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