Actively managed exchange traded funds are enjoying asset-gathering success this year, and it appears investors are awakening to the advantages offered by these products, particularly when it comes to international assets.
“ETFs should be viewed merely as investment “vehicles” which provide access to investments in a structure that comes with certain features and benefits,” writes Ryan Blute, PIMCO Head of EMEA Global Wealth Management. “When choosing an investment, the single most important decision is what the investment strategy should be, such as European corporate bonds, Emerging Market Local bonds, etc.”
Emerging markets investors are once again back as world economies begin the recovery process from Covid-19, but they’re not simply throwing darts at a board. EM investors are exercising more due diligence and, thus, are more picky with their investments.
Active management can help investors identify dominant, growing businesses around the world today that may be overlooked by those unwilling to look beyond the index and think long-term.
“Investors choose the ETF vehicle for a variety of reasons, ranging from its intraday trading liquidity to the transparency provided through holdings disclosure, to the potential for lower fees relative to traditional retail share classes of mutual funds,” notes Blute. “But while passive investment strategies have historically dominated the ETF marketplace, active management is gaining ground.”
A More Strategic Approach
Some market observers believe that investors need to go beyond relying on past performance or buying the cheapest ETF. They are now incorporating a more forensic approach that could dig deeper into company fundamentals.
In various forms and methodologies, actively managed funds are increasingly prominent parts of the ETF landscape and that growth trajectory could last for years.
Advisors are looking critically at traditional market indexes and the challenges of navigating today’s new market environment.
One area where active management can deliver with ETFs is in the fixed income market, which is often fertile territory for active strategies.
“Active management in fixed income can take advantage of a number of inefficiencies in the bond market which introduce opportunities to enhance returns without increasing risk. And these can all be applied to the ETF vehicle,” according to Blute. “Firstly, the bond market continues to be influenced by the rating agencies, which set bond ratings that must be followed by passive index followers, regulated banks and insurance companies, and many institutional pension plans.”
For more on active strategies, visit our Active ETFs Channel.