Exchange-traded funds (ETFs) provided the capital markets with a dynamic investment vehicle that served as an alternative to actively managed funds like mutual funds. While the ETF versus the mutual fund is an ongoing debate in the U.S., data out of Europe suggests that active funds may not be sweating the ETF just yet—or are they?
Per a recent CNBC article: “Money market funds — which usually invest in low-risk, liquid assets like short-term bonds — were the best-sellers over the year to date, with inflows of 211.3 billion euros ($248.4 billion), according to Refinitiv’s European Fund Industry Review. Meanwhile, funds focused on global equities were the most popular among long-term investors, with the sector seeing inflows of 62.8 billion euros.”
“ETFs have enjoyed inflows of 48.5 billion euros so far in 2020, and Glow highlighted that their popularity has been growing across all types of investors,” the article noted further. “ETFs are collections of securities that track an underlying index, while mutual funds are actively managed and buy or sell assets strategically in a bid to beat the market and deliver profit to investors.”
Given that, are ETFs giving mutual funds the heebie jeebies?
“If you look at the general assets under management number, we have got 11.1 trillion (euros) invested in mutual funds, this is 92.7% of the market, and we have got only 0.87 trillion invested in ETFs, which is 7.3% of the market,” said Detlef Glow, Refinitive’s Head of Lipper EMEA Research.
Glow “noted that in terms of flows, things looked a bit better for ETFs, with 45.8 billion euros of total inflows, or 15%, going into ETFs and the remaining 85% going into mutual funds.” Glow also noted that there hasn’t been much movement in this figure in recent history.
“This 15% is roughly the average we saw over the last few years, so from my point of view, there is no reason to be majorly concerned about ETFs when it comes to net sales,” Glow said.
ETFs versus mutual funds aside, it was a win-win for all in fund business after a tumultuous first quarter for 2020. European stimulus response to the pandemic benefited all funds since then.
“The strong fiscal and monetary policy response from governments and central banks around the world, and subsequent normalization of markets, led investors back into ETFs and mutual funds in the second and third quarters and brought total net inflows to 297.1 billion euros by the end of September,” the article said.
Active ETF Options
Aside from following passive indexes, there are also active funds like the JPMorgan Ultra-Short Income ETF (JPST). JPST seeks to provide current income while seeking to maintain a low volatility of principal. Under normal circumstances, the fund seeks to achieve its investment objective by investing at least 80% of its assets in investment grade, U.S. dollar-denominated short-term fixed, variable, and floating rate debt.