Where will the next jolt of growth come for ETFs? Look no further than actively managed funds.
A new research report published by SEI, titled “Getting a Grasp on Actively Managed ETFs Before the Boom,” says the low cost, transparency, and tax efficiency of ETFs make them an attractive choice for investors.
While actively managed ETFs currently make up less than 1% of the global ETF market, SEI predicts active funds will be a major contributor to the next phase of ETF expansion, ultimately competing with traditional active mutual funds for market share.
“Recently there has been positive movement supporting growth in active ETFs, but the historical roadblocks and lengthy SEC approval process have steered both managers and investors away,” said Jay Cipriano, head of traditional solutions for SEI’s investment manager services division.
In April, the Securities and Exchange Commission granted exemptive relief to Exchange Traded Concepts. The move may shorten the time line for new active ETFs to be introduced—a process that typically can take up to 18 months from registration to launch.
In late 2012, the SEC also made leeway for active ETFs to use derivatives, enabling fund sponsors to expand into other asset classes, such as commodities and currencies. This change has made active ETFs more attractive to managers, prompting traditional mutual fund-only providers to move into the space.
“If managers can take advantage of these new positive catalysts, active ETFs may not only fuel the next phase of ETF growth, but over time may challenge traditional active mutual funds for market share,” added Cipriano.
Global management consultant McKinsey & Co. predicts assets in actively managed ETFs will reach $500 billion by 2020, up from $12.6 billion today.
During the first quarter, there were 58 U.S. listed actively managed ETFs. PIMCO was the largest active ETF manager, with just over $7.8 billion in assets.