Key Takeaways from the 2024 Trackinsight Global ETF Survey: Active ETFs

Key Takeaway #1: Active ETFs Are Growing

The landscape of active ETFs has undergone a remarkable transformation, significantly expanding its footprint in the investment world. Total assets under management (AUM) for active ETFs across North America and EMEA have skyrocketed to $664 billion, reflecting an increase of over 500% since 2018.

North America, in particular, has been at the forefront of this expansion. Five years ago, active ETFs accounted for merely 2.8% of the total ETF market share in the region. Fast forward to today, and their market share has ascended to 7.5%, capturing the bulk of the growth in the active ETF sector.

However, to fully appreciate the momentum behind active ETFs, it's crucial to examine the inflows—where investors are directing their money. In 2023, active ETFs in North America secured a remarkable quarter of all ETF inflows, highlighting a significant shift in investor preference and strategy.

Digging deeper into the nuances, it's evident that equity variants of active ETFs have garnered the most interest among the various categories. While in 2018, their share of inflows stood at a modest 3%, by 2023, this figure had surged to 26%.

A prime example of this trend is the JPMorgan Equity Premium Income ETF (JEPI). Boasting an impressive $31.65 billion in AUM as of February 14, 2023, JEPI has recently attracted an additional $481 million in inflows over the trailing month.

JEPI's success can be attributed to its well-executed active equity strategy, enhanced by a covered call overlay to generate income. This strategy, combined with a reasonable expense ratio of 0.35%, has made JEPI a standout choice for investors.

Key Takeaway #2: Mutual Fund Conversions Matter

One of the significant hurdles in the realm of active management has historically been the higher expense ratios and capital gains distributions associated with mutual funds. These factors often detracted from the overall appeal of actively managed investment strategies, particularly in comparison to their ETF counterparts.

Addressing this challenge, many firms have begun converting traditional mutual funds into ETFs, leveraging the inherent efficiencies of the ETF structure to offer effective strategies without the burdens of higher fees and capital gains taxes.

This transformation has also tapped into the growing trend of investors using mobile brokerage apps, which are typically more suited for ETF trading, thus widening the investor base for these strategies.

The 2024 Trackinsight Global ETF Survey delved into SEC filings and discovered that, since 2021, there have been over 70 such conversions.

This shift not only preserves the core of legacy actively managed mutual fund strategies but also enhances them with increased transparency, liquidity, and trading flexibility—key attributes that are often more pronounced in the ETF ecosystem.

A notable instance of this trend occurred in December 2023, when Fidelity converted six of its actively managed Enhanced Index mutual funds into ETFs. These included the Fidelity Enhanced Large Cap Growth ETF (FELG), the Fidelity Enhanced Large Cap Value ETF (FELV), the Fidelity Enhanced Mid Cap ETF (FMDE), the Fidelity Enhanced Small Cap ETF (FESM), and the Fidelity Enhanced International ETF (FENI).

Please note this article is for information purposes only and does not in any way constitute investment advice. It is essential that you seek advice from a registered financial professional prior to making any investment decision.