(Bloomberg) -- BlackRock Inc. is optimistic about the growth of actively managed ETFs after investors across the globe poured more than $160 billion into such strategies this year.
It projects that global assets in active exchange-traded funds could reach $4 trillion by 2030 from the current $920 billion. Regulatory changes in the US, the growth of ready-made portfolios for advisers, and the rise of self-directed investors could all contribute to the trend, the firm says in a new report titled Decoding active ETFs.
The world’s largest asset manager, which oversees $10.6 trillion, is trying to become a bigger player within actively managed strategies. Just $26 billion of the $720 billion within US active ETFs belongs to BlackRock. Rivals including Dimensional Fund Advisors and JPMorgan Asset Management have a bigger presence than it in this arena, according to data compiled by Bloomberg.
Jay Jacobs, BlackRock’s US head of thematic and active ETFs, says that active funds are becoming more popular on two fronts.
“There is growing demand for active strategies generally — and in particular in this environment — as we see higher volatility, we see greater dispersion between individual stocks and sectors,” Jacobs said. “This is being coupled with the secular trend of ETF-ization, where a large portion of investors prefer to use ETFs as their vehicle of choice.”
BlackRock’s predictions about the fund industry have panned out in the past. In 2019, the company projected that bond ETFs could reach $2 trillion within five years. They currently command $2.4 trillion across the globe.
Even though traders have been flocking to active ETFs recently, assets in such funds make up just a fraction of the overall $13.7 trillion global market. Not all active funds have been a hit with investors. Non-transparent active ETFs, which only periodically reveal their holdings, have seen a tepid reception, garnering a modest $9 billion in assets since their launches in 2020.
Still, active strategies overall have made up more than 60% of new fund launches in each of the past four years, according to JPMorgan. Such strategies also have, over the past year, garnered a quarter of all ETF inflows in the US.
There are a few reasons active ETFs overall could continue to take in hoards of cash, according to BlackRock. The 2019 ETF rule, which made it easier for funds to come to market and lowered disclosure requirements, could spur more active-fund launches, the asset manager said. Of the more than 1,300 active ETFs that currently exist, over 1,000 launched post-rule.
Retail investors will also continue to drive growth for active ETFs, BlackRock said. Ownership by self-directed investors has been rising in recent years, turbocharged by the proliferation of commission-free trading. Individual-investor exposure to the segment stood at $56 billion at the end of March, up from $9 billion in 2019.
Another significant driver of the active-fund boom will be the use of tailor-made strategies. These so-called model portfolios are often curated by asset managers for advisers to put client money into. More than 30% of model portfolios held at least one active ETF at the end of last year, up from 20% in 2021, according to BlackRock.
“The growth of the model-portfolio space is a major driver of ETF growth across the industry, and it’s a big way that advisers are looking to scale their businesses,” Jacobs said. “You’re seeing more models incorporating active ETFs into their portfolios, and you’re also seeing bigger allocations.”
--With assistance from Athanasios Psarofagis.
(Updates with link to report.)
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