The extent of the growth within the active ETF market is outlined by Travis Spence, head of active ETF distribution at JP Morgan Asset Management.
He says: “The active ETF market globally has more than tripled since the end 2020 to $687bn (£538bn). Although this only represents about 6 per cent of the total ETF market, in 2023 active ETFs accounted for 20 per cent of net flows, and nearly 28 per cent to date in 2024.
"Overall, active ETFs have been growing at a compound annual growth rate of about 50 per cent over the past five years, more than double the rate of the broader ETF industry."
Spence adds that over the past year60 per cent of the new products coming to the ETF market are active, and notesone of the major growth areas is within the UK, where investors are switching their active open-ended fund exposure into active ETFs, which invest in the same way and have the same manager.
At present there are 90 active ETFs within the Ucits structure for UK investors to access.
In terms of where he sees the future growth in this space coming from, he feels that as clients become more comfortable with the active ETF structure, they will switch their existing asset class investments into the newer structure.
Our sister publication the Financial Times recently reported that regulators at the Central Bank of Ireland, the country with the largest number of ETFs domiciled there, are contemplating changing existing rules that require providers to disclose on the factsheet the entire holdings within an ETF, rather than just the top 10, as is the case with other open-ended fund structures.
We haven't seen the same growth in active ETFs on this side of the Atlantic.
David Hood,Brewin Dolphin
UK wealth manager Brewin Dolphin does not presently allocate any of its client capital to active ETFs.
David Hood, head of central investment solutions at the firm, says: "Active ETFs have seen significant growth in the US over recent years. The tax regime in the US is friendlier to ETFs in general than it is to mutual funds. Therefore, the impetus to launch active ETFs has been stronger.
"In the UK and Europe, ETFs and open-ended funds are on a more level playing field in terms of tax efficiency and so the advantages are not so clear cut.
"We haven't, therefore, seen the same growth in active ETFs on this side of the Atlantic."
Nick Wood, head of fund research at Quilter Cheviot, says that while he does not presently allocate any of his client’s capital to active ETFs, he does expect the segment to grow.
