The debuts of actively-managed ETFs are outnumbering those of traditional funds at a record pace as issuers bet on investor demand for stock picking.
That’s the first time in at least 20 years that this has happened, with 68 active exchange-traded funds launching in 2020, compared with 63 passive ones, according to data compiled by Bloomberg. On Thursday, Franklin Templeton became the latest firm to add on to the trend, with the release of an active fixed-income fund.
Amid continued volatility spurred by a resurgence in coronavirus cases and an uncertain earnings season, some investors are favoring active management. Those funds have attracted more than US$5.3 billion in both May and June, and another US$2.5 billion so far in July.
“The ETF industry is so saturated that investors are ready for different content than just passive products,” said Linda Zhang, chief executive officer of Purview Investments. “They are looking for active content that provides hopefully long-term, much more attractive performance.”
The actively-managed Franklin Liberty Ultra Short Bond ETF, ticker FLUD, started trading Thursday, aiming to provide investors with diversification in the ultra-short debt investment category.
Other recent launches of active funds include the American Century Mid Cap Growth Impact ETF, or MID, and American Century Sustainable Equity ETF, or ESGA, on Wednesday, focusing on the environmental, social and governance factors.
Those active funds are also semi-transparent, a new format that is further boosting the profile of actively-managed ETFs. In particular, they’re the first to employ NYSE’s proxy-based structure, designed to prevent front-running.
Some active funds’ outperformance is drawing increased attention to the category. For instance, ARK Innovation ETF (ARKK) is up almost 60 per cent this year.
“Performance is going to be a big driver,” said Jillian DelSignore, principal at Lakefront Advisory. “Investors look to active management for the ability to outperform, so if these products deliver, I think they should see inflows.”