Active ETF strategies are gaining ground in the fixed income segment


New regulations and increased demand for greater investment options have helped active fund managers become more successful in the traditional segment of passive exchange-traded index funds.

Passive index-based offerings from big names like iShares, Vanguard, and State Street continue to dominate the bond ETF segment, but the passage of new rules implemented by the U.S. Securities and Exchange Commission in 2019 helped make it easier for actively managed ETFs. to get to market, reports the Financial Times. Since then, a number of smaller asset managers have entered the world of bond ETFs with their own specialized offerings.

Actively managed ETF strategies allow new entrants to differentiate themselves from early entrants by offering their own particular investment methodologies. These active ETFs also allow their managers to generate greater profits, with the average fee among active US bond ETFs hovering around 0.5%, according to Morningstar data, compared to 0.3% for passive index ETFs.

According to Capital Group, actively managed fixed income funds are growing around 43%, while fixed income ETFs are growing at about the same rate as the broader ETF market, around 23% over the past few years. last five years.

Since 2021, 65 of the 105 new fixed income ETFs to list in the United States have been actively managed, according to data from Morningstar. Meanwhile, net inflows into actively managed bond ETFs were also the largest on record in 2021, according to EPFR data.

Nonetheless, passive index ETFs remain the dominant force as active ETFs catch up. US-listed bond ETFs attracted $26.5 billion in net inflows in 2021, while traditional passive ETFs brought in $161.3 billion. Globally, active bond ETFs saw net inflows of $32.7 billion, compared to $218.4 billion for passive funds.

“What a 6c-11 rule [the new regulation adopted by the SEC in 2019] has really democratized the ability to bring new ETFs to market,” Holly Framsted, head of ETFs at Capital Group, who previously worked at BlackRock, told the Financial Times.

Capital Group was one of the most recent new entrants to enter the ETF market, with five active equity strategies and one active fixed income option.

“We have a great opportunity to see greater diversification among major ETF providers, just as there is broad diversification among major asset managers in the mutual fund space today,” added Framsted.

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