On this week’s episode of ETF Prime, host Nate Geraci unpacks the rise of active ETFs in 2024 with VettaFi Investment Strategist Cinthia Murphy. Later, Geraci welcomes Kaitlin Hendrix, asset allocation research director at Dimensional Fund Advisors, to discuss the firm’s new unified managed account (UMA) platform.
Active ETFs had the best first half on record, as measured by net flows. While there has been a notable rise in active management, we’re still in the early innings, Geraci said.
During the first half of the year, about one-third of all flows going into ETFs went into active funds, Murphy said. This is particularly interesting when considering that active funds make up just 7% of ETFs available to investors.
Importantly, flows into active funds are not evenly distributed by asset classes. Around 22% of asset flows into U.S. equity ETFs went into active funds during the first half. Similarly, about 20% of flows into fixed income ETFs went into active funds, she noted.
However, about 86% of flows into international fixed income went into active funds during the first half, according to Murphy.
Furthermore, for the alternatives and asset allocation categories, nearly all flows go into actively managed ETFs, Murphy shared.
This trend is even more prominent when looking beyond flows and at all ETF assets under management. Overall, 77% of all assets sitting in alternatives ETFs are in active funds. To compare, just 4.5% of U.S. equity ETF assets are in active funds.
Why Assets Are Flowing Into Active ETFs
Active ETFs have become more popular with investors as heavyweight asset managers have entered the arena.
Murphy said it’s uncommon to see a young, new firm come up with an active ETF strategy and immediately attract significant assets. On the other hand, well-established mutual fund firms that have significant reputational baggage have had more success in attracting strong flows early on.
This is evidenced when looking at the top five active ETFs by net flows during the first half of the year.
The top funds include the BlackRock U.S. Equity Factor Rotation ETF (DYNF ), the JPMorgan NASDAQ Equity Premium Income ETF (JEPQ ), the Janus Henderson AAA CLO ETF (JAAA ), the Fidelity Total Bond ETF (FBND ), and the BlackRock Flexible Income ETF (BINC ).
Murphy pointed to JAAA, highlighting that the entire CLO ETF category has been on fire and still has a long runway.
Dimensional Forays Into Unified Managed Accounts
Dimensional Fund Advisors, the largest active ETF issuer, has begun offering UMAs.
A UMA is a professionally managed investment account that can hold multiple investment vehicles. While a separately managed account (SMA) is a direct security sleeve, offering incredible personalization, a UMA incorporates ETFs and other invest vehicles, Dimensional’s Hendrix explained.
Dimensional now offers a new UMA platform, in which the firm offers nine SMA starting strategies. Now, alongside a SMA strategy, advisors can also add ETFs, Hendrix said. The available ETFs include any of Dimensional’s 38 ETFs as well as about 1,500 ETFs from other issuers.
“We took a lot of feedback from our clients,” Hendrix added. “We work together with our advisor community, and we heard that they want to have more investment vehicles, more asset allocation flexibility within that account.”
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