The ETF industry has been growing at a torrential pace in 2021, with the vast majority of new funds coming online under active management. In the past two years alone, actively managed ETFs have made up nearly 60% of all new ETFs, while AUM within active ETFs has more than tripled, according to Dividend.com. With active funds continuing to take the lion’s share of launches in 2022, here are three big trends to watch for in the new year.
Volatility Will Drive More Investors to Active Funds
Investors have been pouring into ETFs of all kinds for their tax efficiency and lower management fees compared to mutual funds. Currently, active ETFs account for less than 5% of the entire industry but encompass a much larger portion of new assets. Inflationary fears and market volatility are presenting an opportunity for active managers to outperform and deliver returns with potentially less risk exposure.
With the pandemic expected to extend well into 2022 and the potential of new variants like the recent Omicron strain that is spreading rapidly across the globe, uncertainty and volatility are anticipated to continue. Add on top of that inflationary fears and interest rate increases, and it sets the stage for investors to increasingly turn to active management in seeking funds that can buy and sell anytime and respond to ever-changing market conditions while utilizing volatility strategies.
Greater Mutual Fund Conversion
This year saw many of the giant mutual fund firms finally moving into the ETF space with the conversion of some of their popular mutual fund strategies to the ETF wrapper. T. Rowe Price, Fidelity, and American Century all launched active ETFs this year as the tax efficiency of ETFs continued to appeal to investors of all types. This trend is expected to continue and grow in 2022, with major players such as JPMorgan already announcing their intentions to convert mutual funds to active ETFs.
More Novel Thematic ETFs
2021 was a year that once again saw the rise of the retail investor, with retail investing making up roughly 20% of average daily equity volume in U.S. markets. The meme stock trend that involved companies such as GameStop, AMC, and others served to highlight the power of the retail investor.
The success of ARK’s lineup of thematic innovation funds that appealed to retail investors looking for exposure to specific industries served to spotlight the role and appeal that active thematic ETFs could have in outperforming. Next year is anticipated to bring new trends in thematics, with recent launches delving into topics such as artificial intelligence and the future of food.
Active management is poised favorably moving into next year. T. Rowe Price, an active management firm, currently offers eight actively managed ETFs with a variety of strategies for investors to align their risk exposures and investment goals.
The firm brings a bevy of experience and research to its products, with portfolio managers averaging over 20 years in investing each, as well as over 400 investment professionals dedicated to researching companies within ETFs.
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