Adoption of Active ETFs Is Accelerating

Actively managed ETFs keep punching above their weight. In the first 10 months of 2022, active ETFs gathered $59 billion, according to FactSet data, equal to 12% of the industry’s net inflows, despite representing less than 5% of the overall U.S.-listed ETF assets. With many new products first trading this year, the stage is set for another strong year in 2023. 

Let’s recap some of the successes tied to the letter C.

Covered Calls: As bond yields climbed higher in 2022, advisors sought out equity income alternatives. The JPMorgan Equity Premium Income ETF (JEPI) has led the charge in 2022, gathering $9.8 billion of new money, pushing the ETF to $14.5 billion in assets. JEPI actively selects lower-risk stocks based on proprietary research and enhances the monthly income generated through out-of-the-money S&P 500 Index call options. While smaller in size, the Amplify CWP Enhanced Dividend Income ETF (DIVO) gathered $1.2 billion year-to-date through October. The $2.1 billion DIVO also combines covered calls, but does so with high-quality, dividend-paying stocks selected through active management. 

Cash-like Strategies: The JPMorgan Ultra-Short Income ETF (JPST) is the largest active ETF based on its $22 billion in assets under management, but the ETF has expanded its lead with $4.1 billion of net inflows thus far in 2022. With an average duration of three months, but a yield of more than 3%, JPST was sought out for its risk-adjusted cash-like income. 

Yet it was not alone, as many other ultra-short active bond ETFs gained traction this year. The BlackRock Ultra Short-Term Bond ETF (ICSH), the First Trust Enhanced Short Maturity ETF (FTSM), the PGIM Ultra-Short Bond ETF (PULS), and the Vanguard Ultra-Short Bond ETF (VUSB) all gathered more than $800 million to start the year. To be clear, unlike cash, there is some risk involved with these ETFs, but it is minimal.

Core Equities: The Dimensional U.S. Core Equity 2 ETF (DFAC) is one of the many ETFs that Dimensional Fund Advisors converted from a mutual fund. While most of the $16 billion in assets held across more than 2,500 positions were part of the fund prior to the 2021 conversion, DFAC added $2.7 billion this year. Another broad market, but actively managed, core equity ETF to garner interest is the Avantis U.S. Equity ETF (AVUS). AVUS is a $2.8 billion ETF with over 2,000 holdings aided by $1.2 billion of net inflows in 2022. Both AVUS and DFUS favor stocks with low valuations that are connected to companies with high profitability.

Proving that age is not a factor with active ETFs the way it is with active mutual funds, the Capital Group Dividend Value ETF (CGDV) gathered $945 million thus far in 2022 despite launching in February 2022. CGDV is more concentrated than DFAC and AVUS with 48 positions, but it is positioned as a core equity holding that potentially benefits from active management.

Commodities: Demand for commodity ETFs accelerated in 2022 as advisors and end clients sought diversification benefits amid an inflationary period. The Invesco Optimum Yield Diversified Commodity Strategy No K-1 ETF (PDBC) added $2.1 billion to grow to $7.4 billion in assets this year, while the First Trust Global Tactical Commodity Strategy Fund (FTGC) added $1.9 billion to reach $4.1 billion in assets. Both ETFs provide broad exposure to commodity futures including agriculture, energy, and industrial and precious metals.

Many still think of active ETFs as only through the lens of the ARK Innovation ETF (ARKK), the disruptive innovation ETF that has remained popular in 2022 despite performance challenges. However, there’s a broad suite of successful ETF products that are also managed with discretion. In addition to the above, in the last few years, well-established active management firms like AllianceBernstein, DoubleLine, Federated, Harbor Capital, Matthews Asia, Neuberger Berman, and T. Rowe Price brought their security selection expertise to the ETF market. We expect active ETFs to remain popular in 2023.  

Active management is going to be one of the topics being highlighted at the Exchange: An ETF Experience conference in Florida in February 2023. Advisors can join us by registering today and saving.

For more news, information, and strategy, visit the Core Strategies Channel.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


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