More than one in three sponsors of exchanged-traded products plan to develop active equity ETFs, new research shows.
Cerulli Associates, Boston, released this finding in a June 2013 issue of the “The Cerulli Edge: Global Edition.” The report details ETF product trends in the U.S., Europe and Australia, and explores structured products regulation and design issues.
The report states that 36 percent of sponsors of exchange-traded products have plans to launch active equity exchange-traded funds. And more than half (57 percent) of sponsors are developing fixed income ETFs.
The report observes, however, that active ETFs accounted for less than one percent ($17.8 billion) of all ETP assets under management in April.
“Active ETF providers in the U.S. are hoping to leverage their expertise and reputation to grab market share in Europe,” the report states. “However, providers face transparency and regulatory issues, as well as competition from low-cost mutual funds.
“While active bond ETFs will likely hold their own against low-cost mutual fund competitors, Cerulli doubts whether active equity ETFs will deliver the sustainable performance necessary to become truly embedded,” the report adds.
The survey notes also that nearly four in ten (38 percent) of ETF sponsors view institutional adoption and use of ETFs as a “major driver” of the market’s growth. And more than 6 in 10 (63 percent) sponsors rank institutional adoption as a “moderate driver.”
The ETF sponsors additionally rate the following as drivers of growth:
Advisor adoption and use will increase (81 percent cite that is a major driver and 19 percent as a moderate driver)
Increased use of ETF strategies among advisors and institutions (56 percent and 44 percent, respectively).
The overall popularity of passive investing will continue to increase, benefiting ETFs (50 percent and 44 percent).
Active ETFs will achieve a breakthrough as a new source of assets (25 percent and 25 percent).
ETF use in 401(k) plans will increase as recordkeeping and other challenges in this channel are addressed (25 percent and 38 percent).
Self-directed investor adoption and use will increase (19 percent and 63 percent).