2023 was capped by a strong fourth-quarter rally, with big tech leading much of the gains heading into 2024. However, the year also threw a spotlight on the rise in popularity for active exchange-traded funds (ETFs).
“While active ETFs account for only 6% of the overall market share, they captured 21% of the total net flow as of year-end—$117 billion in absolute terms,” wrote Sandra Testani, head of ETF product strategy at American Century Investments. “That’s a new all-time high for active ETFs that signifies favorable growth potential in the future.”
With overall costs lowering for active ETFs as of late, they’ve become more competitive recently in terms of capturing market share versus their passive counterparts. 2023 saw more investors giving active ETFs a closer look while others took the plunge and allocated their investment capital into these funds.
“Active ETF product development has continued to outpace passive ETFs and active mutual funds, offering investors more choice, with the potential for tax-efficiency and attractive costs,” Testani noted.
When parsing the inflow data further, allocations also favored those seeking quality.
Quality ETFs a Bright Spot
Quality and/or value was a recurring theme in active ETFs, especially heading into a 2024 full of question marks. With that, quality-focused funds garnered attention as well, attracting a healthy amount of inflows even though much optimism was brimming on the prospect of rate cuts.
“Quality-oriented ETFs were a bright spot, attracting $25 billion in net flow, despite an overall risk-on sentiment,” Testani added. “This represents an increase of 57% based on the organic flow rate in 2023. Growth came in second place with $20 billion.”
American Century’s ETF product suite caters to investors looking to add value to their ETF exposure. The primary theme is finding companies with low valuations to pair with high profitability ratios and sound fundamentals.
ETF investors can also tilt their exposure toward a specific market capitalization. So for large-caps, consider the Avantis U.S. Large Cap Value ETF (AVLV ).
Looking for an option that balances large- and small-cap benefits? Then consider midcaps, with the Avantis U.S. Mid Cap Value ETF (AVMV ).
To seek even greater growth opportunities, but maintain a value slant, consider the Avantis U.S. Small Cap Value ETF (AVUV ). It seeks long-term capital appreciation, investing primarily in a diverse group of U.S. small-cap companies across market sectors and industry groups.
As mentioned, active ETFs have been an attractive option due to their decreasing costs. The aforementioned funds are no exception to that trend, with their low expense ratios.
| FUND | EXPENSE RATIO (GROSS) |
|---|---|
| Avantis U.S. Large Cap Value ETF (AVLV) | 0.15% |
| Avantis U.S. Mid Cap Value ETF (AVMV) | 0.28% |
| Avantis U.S. Small Cap Value ETF (AVUV) | 0.25% |
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