Active ETFs had a massive year in 2023. In the United States, specifically, active ETFs have gathered significant flows despite their relatively smaller AUM totals. Interest is clearly growing with new active ETF launches and a run of mutual fund-to-ETF conversions in the last twelve months, too. A new survey of ETF leaders from PwC indicates that the industry expects significant active ETF demand in the coming years.
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Specifically, 76% of respondents share that they expect to see “significant” active ETF demand in the next two to three years. That tally comes in as the second highest among world regions, with 82% of Canadian leaders expecting significant demand.
That demand speaks to a growing view among investors that active ETFs offer real appeal. For one, demand may stem from investor demand for a more tax efficient option than mutual funds. Thanks to their creation redemption model, they frequently produce fewer capital gains for investors than mutual funds, seeing that many asset managers are considering converting.
Active ETFs provide significant advantages due to their active approach. Actively managed strategies can adapt to events more quickly than passive ETFs can. At the same time, they can also seek out performance more aggressively than indexed strategies can.
Investors can layer in active funds into their portfolios in several ways. For one, active ETFs can provide specialized satellite allocations to a given theme or market segment. Leaning on active ETFs, then, can get the best out of their managers’ experience in a given area. At the same time, low-priced, rules-based active ETFs could also provide options for core allocations.
It’s clear that active ETF demand remains strong, and for good reason. Investors can consider strategies from firms like T. Rowe Price, which offers ETFs like the T. Rowe Price Capital Appreciation ETF (TCAF ).
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