Morningstar Inc. This year, worldwide inflows into ETFs crossed the $1 trillion mark for the first time at the end of November, surpassing last year’s total of $735.7 billion, according to U.S. data. The wave of money coupled with rising markets pushed global ETF assets to nearly $9.5 trillion, more than double the industry’s at the end of 2018.
The majority of that money has gone into low-cost U.S. funds that track indexes run by Vanguard Group, BlackRock Inc. and State Street Corp., which together control more than three-quarters of all U.S. ETF assets. Huh. Analysts said rising stock markets, including a 25% increase for the S&P 500 this year and a lack of higher-yield options, have fueled interest in such funds.
“You have this historical precedent where you have turbulent equity markets, and more and more investors are making their way to index products,” said Rich Powers, head of ETFs and index product management at Vanguard.
Analysts and executives said asset managers are actively looking to managed funds, some with narrow disciplines, in search of a niche that is not already dominated by industry jugglers. For example, VanEck earlier this month launched an active ETF targeting the food industry. In March, Tuttle Capital Management launched its FOMO ETF, which is bullish on stocks popular with individual investors.
Firms including Dimensional Fund Advisors have converted mutual funds into active ETFs. Meanwhile, larger firms have launched ETFs that mimic popular mutual funds, including Fidelity Investments Magellan and the Blue Chip Growth Fund.
“We should have a broader offering of ETFs that stack up with the wider offering of mutual funds,” said Gerard O’Reilly, co-chief executive of his company Dimensional. “Choose your own adventure.”
As ETFs, baskets of securities that trade as easily as stocks, have boomed this year, investors have seen $84 in those choosing combinations of securities looking for outperformance rather than tracking swaths of the stock market. Billion record. According to Morningstar, this represents about 10% of all inflows into U.S. ETFs, up from about 8% last year.
Asset managers, known to run mutual funds for a long time, have rushed to take advantage of investor interest in active ETFs. According to FactSet, of the record 380 ETFs launched in the US this year, more than half are actively managed. Fidelity, Putnam and T. Rowe Price are among the firms that have rolled out actively managed ETFs in 2021. New firms have also entered the fray for ETFs.
The top 20 fastest-growing ETFs, largely driven by Vanguard and BlackRock, pulled in nearly 40% of all inflows this year, average fees less than 0.10 percentage points and tracked some sort of benchmark.
Many active ETFs remain relatively small and charge higher fees than passive funds, posing a risk of new products being discontinued over the next several years. ETFs typically require between $50 million and $100 million in assets within five years of launch, analysts and executives say; Funds below those levels are closed.
According to data from FactSet, three-fifths of the nearly 600 active ETFs in the US have assets of less than $100 million. More than half are under $50 million.
“You’re going to see a lot of those companies taking a hard look at their futures,” said Elizabeth Kashner, FactSet’s director of ETF research.
The stock market’s rally has helped excite many ETF providers, Ms. Kashner said, adding that the firms closed funds in 2021 at the lowest in eight years. But market volatility, which most stock market strategists anticipate, can exclude weaker players, she said.
ETF closings generally climbed over the past decade, and firms closed a record 277 ETFs last year as the coronavirus dragged the markets down. Many had some property. According to FactSet data, nearly a third of all active ETFs are marked as having medium or high risk of closure, taking into account assets, inflows and fund closure history.
Analysts and executives said factors that have helped stoke an active launch include streamlined regulations by regulators in late 2019 that made it easier to launch ETFs. The approval of the first semi-transparent active ETF, which protects certain holdings from the public eye, followed.
Analysts also noted that the success of ARK Investment Management chief executive Cathy Wood in 2020 showed how active ETFs can generate huge returns and draw in substantial amounts of money. Many of ARK’s funds doubled last year, with its assets reaching $60 billion earlier this year, although many of its stakes have dropped in 2021.
Most of the other active managers aren’t doing a much better job. Two-thirds of mutual fund large-cap managers have outperformed the benchmark this year, while nearly 10% of the 371 U.S. active ETFs with full-year performance data outperform the S&P 500. More than a third are flat or negative. 2021.
Ms. Kashner of FactSet said, “Active management is a zero-sum game. Beating the benchmark quarter year after year is a very difficult task that active managers have traditionally struggled with. The ETF cover doesn’t change that. . Cullen.”
This story has been published without modification in text from a wire agency feed
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