Active ETFs The ETF buyers’ guide
Demand for active exchange-traded funds (ETFs) has grown significantly in recent years. Global assets under management are now at USD 565 billion, which is a sharp increase from only USD 122 billion five years ago.1 This growth is likely to continue. According to the 2022 Global ETF Investor Survey from Brown Brothers Harriman, 39% of investors globally are planning to increase their active ETF allocation. However, in our conversations with clients, we still see many misconceptions about active ETFs. For this reason, we have created this guide to serve as an educational resource.
1 Bloomberg; Data as of 29 December 2023, US & UCITS only.
A variety of “engines” or strategies can therefore be placed in the ETF structure to leverage its benefits.
“Active” refers to specific investment decisions, which are designed to achieve specific outcomes, such as outperforming an index (Alpha), generating income, or achieving control in terms of duration, yield or credit quality.
An active ETF provides access to these specific outcomes, all while maintaining the attributes of the ETF structure.
The ETF is just a wrapper and the content itself is independent of the vehicle
Demand for active ETFs
Active ETF assets have grown sharply in recent years. At the end of 2017 the global assets under management were only at 58bn US dollar, growing to 565bn US dollar end of 2023.2
The share of active ETFs in investors’ portfolios has risen steadily over the past five years. According to the Trackinsight Global ETF Survey 2023, which has insights from over 500 ETF buyers globally, nearly 70% of these investors now use active ETFs in their portfolios, while 12% have an active ETF allocation that is more than 40% of their total assets.
So far, active ETFs make up only 2% of the UCITS ETF market2, but this share is likely to rise if growth follows the same trajectory as we are witnessing in the US today.
While passive strategies continue to dominate European ETF inflows, investors are increasingly realising that the ETF wrapper is also an ideal home for actively managed strategies: 39% of European investors recently said that they expect their exposure to active ETFs to increase over the next 12 months.3
Active management in an ETF wrapper is one of the factors that will drive further ETF growth, as active ETFs provide investors with the opportunity to earn alpha on their investments and retain all the benefits that they expect from the ETF structure.
2 Bloomberg; Data as of 29 December 2023, US & UCITS only.
3 Brown Brothers Harriman Global ETF survey 2023.
Demand for active ETFs is growing
Global active ETFs assets by year ($bn)
Chart
Source: (left) Bloomberg; Data as of 29 December 2023, US & UCITS only. (right) TrackInsight Global ETF Survey 2023.
Percentage of portfolio invested in actively managed ETFs
Chart
Types of active ETFs
The first active ETF was launched in 2008. Since then, a lot of innovation has happened in the active ETF market. There are now 19 ETF issuers offering active ETFs – a number that has tripled over the last five years.
In 2023 equities overtook fixed income as the largest asset class for active ETF allocations, with 56% of UCITS active ETF assets aligned to equity strategies.4
The active ETF market is already as diverse as the active mutual fund market, ranging from index-like active research enhanced indexing strategies, to higher tracking error unconstrained or even thematic strategies.
4Source: Bloomberg as of 29 December 2023.
Active UCITS ETF: a market overview
Source: Bloomberg as of 29 December 2023.
Why invest in active ETFs?
Active ETFs offer the same benefits of the ETF wrapper as passive ETFs. Active ETFs are cost effective, offer daily holdings transparency, can be traded throughout the day at a known price and offer access to virtually every market worldwide.
Additionally, active ETFs bring expert research and security selection to ETF investors. Active security selection can identify dislocations in the market and focus on alpha generation.
Adding active ETFs to an ETF allocation also brings diversification benefits – in terms of the ETF providers themselves and with regards to the sources of return within a portfolio.
Traditionally it has been more expensive to access active research capabilities and strategies in the mutual fund wrapper.
Actively managed ETFs in focus
Trading active ETFs is the same as trading passive ETFs. There are three methods: NAV trading; risk trading; and agency trading.
Fundamentally, the liquidity profile of any ETF is driven by its underlying securities.
We expect ESG funds to continue growing through
2023, and well beyond.
Active ETF strategies are still relatively new in Europe, so not every investor has experience of the active ETF due diligence process.
More and more asset managers are launching active ETFs.
Passive and active ETFs can complement each other by providing an attractive balance between risk and return.
J.P. Morgan ETFs are rigorously designed to push the boundaries of ETF investing so that investors can build diversified, competitively priced portfolios.
J.P. Morgan Asset Management launched its first UCITS ETF in November 2017. Since then, we have brought many innovations to the ETF market – from our successful Research Enhanced Index Equity strategies which now consists of ten ETFs, to the launch of the industry’s first active China equity and UK equity ETF, as well as a UCITS global equity version of the world's largest ETF.
J.P. Morgan Asset Management is the number 1 provider for active ETFs in the UCITS space and one of the largest globally.8 We have also been named “Best Active ETF Provider (USD 500 million +)” by ETF Express and got awarded "Best Active ETF" at the 2023 ETF Stream Awards.
Past performance is not a reliable indicator of current and future results.
8 Source: Bloomberg as of 31 December 2023.
Source: J.P. Morgan Asset Management, Bloomberg as of 31 December 2023, Funds Europe, ETF Express.
Past performance is not a reliable indicator of current and future results.
This is a marketing communication. The views contained herein are not to be taken as advice or a 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. This communication is issued in the UK by JPMorgan Asset Management (UK) Limited, which is authorised and regulated by the Financial Conduct Authority.
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