Let’s just get the answer to the question posed above out of the way: No one knows for certain, just as with any new year’s prognostication. However, every day does represent an opportunity for active management in your life — from walking across the street without getting hit by a car to actively managing your health, your kids and your relationships. Any notion that client assets should not be actively managed would be as naïve as to think that everyone shares the same investment goals, objectives and risk tolerances. As mentioned previously in this column, trading volume illustrates that the growth of index-based ETFs is far more about tactical asset allocation and investment flexibility than it is an embrace of a buy and hold approach.
The democratization of ETFs has become more evident with each new year, too. ETFs are increasingly used as active tools by mom-and-pop investors, self-directed investors, the growing millennial embrace of “robo-advisors,” financial advisors for their clients, investment companies as tools within mutual funds and closed-end funds, hedge funds and, finally, by some of the largest institutional pension, endowment and sovereign asset managers.
While a fair share of pundits point to 2017 as a year for active management to shine, a look at the youngest segment of the ETF space — actively managed ETFs — may shed light on other underlying trends. Through the end of November 2016, the average age of all active ETFs was just 2.74 years. Barring a substantial influx of new actively managed ETFs entering the marketplace, the average active ETF age will reach three years during 2017, which represents a critical milestone for review and usage by advisors.
It remains discouraging to come across other news outlets’ articles that rate successful ETFs by their assets under management. Any fund company can certainly understand that assets drive revenues; however, the industry as a whole would be far better served by basing the success of an ETF on its performance and the investment merits delivered to its shareholders.