Growth spurt: Active ETFs on the way to $500 billion

McKinsey says name brands will drive big growth over next seven years

Jan 29, 2013 @ 3:55 pm

By Jason Kephart

etfs
+ Zoom

Actively managed exchange-traded funds have yet to take off with investors — with one big exception — but over the next several years, experts expect them to grow faster than their passive brethren.

Pooneh Baghai, co-leader of the Americas wealth management, asset management and retirement practice at McKinsey & Co., predicts that assets in actively managed exchange-traded funds will explode to $500 billion by 2020, up from $10 billion today.

“We think active ETFs have major momentum,” she said. “It's not a question of if; it's a question of when and how much.”

Growth will be driven by big brands such as Fidelity Investments, T. Rowe Price Group Inc. and Franklin Resources Inc., Ms. Baghai said. The three firms, along with several others, are in various stages of getting approval from the Securities and Exchange Commission to launch active ETFs.

Bill Gross and his Pacific Investment Management Co. LLC showed the power a brand can have in the active-ETF business last year with the launch of the Pimco Total Return ETF (BOND). In less than a year, the ETF has grown to more than $4 billion, and in 2012, it accounted for about 80% of the overall growth of active ETFs.

Peter Quinn, president and chief operating officer at RiverFront Investment Group LLC, uses both active and passive strategies in the model portfolios his firm creates for financial advisers.

He said he could see active ETFs taking the place of a mutual funds' institutional share class in fee-based accounts, where ETFs are most popular, especially if the expense ratios come down.

“That may drive the phenomenon,” he said.

At least one company isn't getting too excited about active ETFs just yet. Daniel Gamba, head of iShares Americas Institutional Business, said active ETFs aren't a priority right now for his company, which is the largest provider of ETFs at $556 billion in such assets.

“We're taking a wait-and-see approach,” he said.

“Everybody has a point of view,” Ms. Baghai said. “We'll know who's right in 10 years.”

0
Comments

What do you think?

View comments

Recommended for you

Featured video

INTV

Stephanie Bogan: What's really holding advisers back from achieving their goals

The only thing holding financial advisers back from accomplishing what they want is the assumptions they're making, according to Stephanie Bogan, founder of Educe Inc.

Video Spotlight

A Teacher’s Lesson Plan

Sponsored by Prudential

Latest news & opinion

Will Jeffrey Gundlach's Trump-like approach on Twitter work in financial services?

The DoubleLine CEO's attacks on Wall Street Journal reporters is igniting a discussion on what's fair game on social media.

Fidelity wins arb case against wine mogul but earns a rebuke from Finra

In the case of investor Peter Deutsch, Fidelity doesn't have to pay any compensation, but regulator said firm put its interests ahead of his.

Plaintiffs win in Tibble vs. Edison 401(k) fee case

After a decade of activity around the lawsuit, including a hearing before the U.S. Supreme Court, judge rules a prudent fiduciary would have invested in institutional shares.

Advisers get more breathing room to make Form ADV changes

RIAs can enter '0' in some new parts of the document before their annual filing next year.

Since banking scandal, Wells Fargo advisers with more than $19.2 billion leave firm

Despite a trying year, the firm has said it will sweeten signing bonuses for veteran advisers.

X

Subscribe and Save 60%

Premium Access
Print + Digital

Learn more
Subscribe to Print