Active ETF momentum among key themes in ‘vibrant’ transition of funds

Report highlights several trends underlying the continued strength of the ETF industry.

Investors are increasingly allocating to exchange-traded funds with assets soaring to $11 trillion in 2023 and the range of themes available creating new interest.

A new report from Trackinsight in partnership with J.P. Morgan Asset Management and State Street highlights several themes that are shaping the ETF landscape in North America and globally, using an analysis of over 10,000 exchange-traded products and insights from more than 500 investment professionals.

“This year’s Global ETF Survey underscores the vibrant expansion and the transformative potential of the ETF industry,” said Philippe Malaise, CEO of Trackinsight.

Active ETFs is one growing theme, although this momentum is centered on North America where the strategies accounted for 25% of 2023 flows to bring assets to a new record high of $630 billion. This contrasts with preferences across the Atlantic where European investors opt for passive ETFs and the active segment has assets of just $32 billion.

“We coined the phrase ETF 3.0 several years ago, as a description of the exponential growth we expected to see for active ETFs globally. The 2024 survey results echo our predictions,” said Francis Koudelka, Senior Vice President & Global ETF Product Specialist at State Street. “Global investors are telling us they are allocating more to active ETFs, would be more apt to purchase a strategy if it was converted from a mutual fund to ETF, and would like to see global regulators enable a listed ETF as a share class of an unlisted fund. We remain bullish on the growth of active ETFs globally.”

J.P. Morgan Asset Management’s head of ETF distribution in EMEA, Travis Spence, believes that the future of ETFs is active and has seen existing ETF investors rotate into active.

“We’re also seeing increasing interest in active fixed income ETFs which can allocate towards higher-quality issuers and away from those issuers at risk of downgrades. Active management can produce better investment outcomes, particularly when it comes to sustainable investing, where fundamental active research can take into account financially materially factors, combined with engagement.”

THEMATIC ETFs

Thematic ETFs are key in attracting new money and, while last year saw a decline in inflows compared to the pandemic years, there was strong interest in funds offering exposure to AI, robotics, and automation with $6.3 billion inflows across the U.S. and Europe, while U.S investors piled $1 billion into funds focused on nuclear energy. In Europe, climate transition remains a key theme with $10 billion in capital added last year.

The approval of spot bitcoin ETFs in the United States saw a spark of activity in this area, with new SEC-approved funds grabbing a larger share of the crypto asset ETF space than Canada and Europe. Last year saw $1.5 billion inflows to crypto ETFs in the U.S. and more than $1 billion in Europe.

The pushback against ESG in the U.S. has widened the transatlantic divide with Europe now having a 75% share of the global $550 billion ESG ETF assets having added $50 billion last year.

The report also shows that fixed income saw a revival in 2023 with assets reaching $2 trillion. Fixed income along with equities remain the most popular asset classes for ETF investors globally.