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A quarter of ETFs could be actively managed by 2023

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U.S. investors expect actively managed ETFs to skyrocket in popularity in the next few years, surging to more than a quarter of client allocations by 2023.

Money managers in the world’s largest ETF market predict the share of active products in ETF portfolios will rise to 26%, up from 19% today, according to a survey by JPMorgan Asset Management.

American respondents are more bullish on the funds than their counterparts in other regions. In Asia-Pacific, predictions are that active products will make up just 4% of allocations, while in EMEA, the figure is 21%.

One thing they all agree on: Passive funds will face increasing competition from both active and smart-beta strategies. The share of index-tracking ETFs globally will shrink to 61% of portfolios by 2023 from the current 69%, respondents to the survey predict.

“Active ETFs give clients a tremendous set of new opportunities to tap into, so we’re at the very beginning,” Olivier Paquier, head of ETF distribution in EMEA at JPM AM, said by phone. The appetite for asset classes beyond equities “will also dilute the very high portion of passively managed ETFs,” he said.

The JPMorgan Ultra-Short Income fund (JPST) recently surpassed the long-reigning Pimco Enhanced Short Maturity Active product (MINT) as the largest active ETF in the world.

Global asset managers and other finance professionals cited appetite for achieving specific investment objectives, like sustainable investing, as the key reasons for the projected rise in popularity of active ETFs. The survey took place in late March through early April and included 320 professional investors around the world, with average assets under management of $31.8 billion.

Active ETFs will get a boost from the SEC’s approval of so-called non-transparent ETFs, according to Athanasios Psarofagis, a Bloomberg Intelligence analyst. Such structures allow fund managers to shield their strategies from copycats.

The leaders raked in a combined $949 billion over the past decade.
July 7

“We will see a big uptick in launches and more of the asset managers who were holding out to now jump in,” Psarofagis said by email.

However, active ETFs face heated competition from smart-beta strategies, he added.

The survey’s Asia-Pacific and EMEA-based respondents said they expect smart-beta products to grow faster than active ETFs in their regions. Overall, investors in the survey expect ESG-focused funds to grow at the quickest pace over the next three years.

Bloomberg News