The investment world is witnessing a seismic shift, and a key component of it is coming from the rise of Active ETFs.
At the start of the decade, Active ETFs represented only 0.5% of the industry, according to MarketPulse. Fast forward to today, and they sit at about 3.5%, with projections suggesting they will represent around 7% by 2030. This strong momentum is reshaping strategies for asset managers and investors alike.
Christopher Davis sat down with Asset TV to dive into the Active ETF boom. Watch the full segment below and read on for highlights.
Innovation Drives Expansion
The ETF market is booming, with over 500 new ETFs launched this year and 1,500 awaiting SEC approval. The SEC also approved ETF share classes for mutual funds this year, highlighting the pace of change across the market.
Key Considerations for Managers Entering the Market
- Play to your strengths: Launching an ETF doesn’t guarantee success; managers must continue to focus on their core capabilities.
- Define your market approach: Decide between offering a broad suite or focusing on niche areas with unmet demand.
- Choose your entry path: Options include converting mutual funds, creating new ETFs, or adding ETF share classes.
- Price competitively: ETFs are more price-sensitive than mutual funds. Competitive pricing is critical for success.
Institutional Buy-In
Institutions hold $7 trillion in ETF assets, with $750 billion in active ETFs. RIAs, the fastest-growing wealth channel, show the strongest interest, making them a prime target for growth.
Pricing Dynamics
While 70% of assets are in ETFs with fees under 20 basis points, most revenue comes from funds charging more than that. The sweet spot for profitability lies between 20–50 basis points. The conversation has shifted from “cheapest wins” to value matters, especially for unique strategies like buffer funds that offer downside protection.
Top Performing Categories
- Diversified Providers: Firms like Dimensional and Capital Group leverage broad capabilities across asset classes.
- Focused Franchises: JP Morgan excels with income-focused ETFs like JEPI.
- Niche Innovators: Firms like Innovator succeed by democratizing complex strategies, turning bespoke solutions into scalable ETF products.
Bottom Line
Active ETFs are no longer a question of if; it’s how and when. For asset managers, the window of opportunity is open, but it won’t stay that way forever. The time to act is now.
