Institutional investors set to drive increased demand for actively managed ETFs

Institutional investors, including pension funds, are set to drive increased demand for actively managed exchange-traded funds (ETFs), according to Cerulli Associates.

Its latest issue of The Cerulli Edge – Global Edition, found that although actively managed ETFs are still only a small part of the overall ETF market, they have gained a decent share of new flows this year as investors braced themselves for interest rate rises and cheaper alternatives to active mutual fund strategies.

Commenting, Cerulli Associates director of European institutional research, Justina Deveikyte, said: “Institutional investors – including pension funds, insurers, sovereign wealth funds, and non-profits – are likely to be the main drivers of new business for actively managed ETFs in the short term.”

The assets under management (AUM) of European actively managed ETFs increased by €3bn during the first six months of 2021 to reach €15.8bn at the end of June, according to Morningstar data. The number of actively managed ETFs rose by two to 49 in the first six months of this year.

Compared to the U.S., there are relatively few active ETFs in the European marketplace, but those that have proved popular with investors this year include ultrashort-dated fixed-income strategies.

Cerulli’s report noted that actively managed ETFs combine the benefits of a well-diversified portfolio with the advantages of an ETF wrapper, including trading flexibility and cost efficiency. To provide investors with a wider range of options, ETF managers are launching ETFs that offer the same strategies as their traditional mutual funds.

Deveikyte notes that the quality of the underlying active strategy may be more important than the size of the manager when it comes to determining success. “Smaller managers are applying their in-house expertise in active management and knowledge to ETF strategies. This can help them gain assets across the fixed-income market and in areas such as environmental, social, and governance (ESG) investing in the equity market,” she said.

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