investor daily logo

Active ETFs tipped to take over as market sees significant growth

By Maja Garaca Djurdjevic
3 minute read

Active ETFs are poised to dominate the ETF landscape, driven by significant growth and investor demand, according to a CEO.

The APAC ETF market, currently valued at US$1.3 trillion, is expected to grow faster than any other region, doubling every three years. In Australia, the ETF market is on the verge of reaching the AU$200 billion milestone, standing at approximately AU$195 billion in funds under management (FUM) as of April 2024.

Speaking at the Morningstar Investment Conference 2024 last week, Dan Watkins, CEO of Asia-Pacific, JP Morgan Asset Management, described ETFs as “just a wrapper for all investment strategies”. He noted that while active ETFs currently represent only 6 per cent of the ETF market, “the future is undoubtedly active”.

Watkins explained that new launches of active ETFs have outpaced those of passive ETFs every year since 2020.

“Inflows into active ETFs are projected to grow at a compound annual growth rate (CAGR) of 37 per cent over the next five years, outpacing the 15 per cent growth for passive indices,” he said. This trend is supported by the fact that 72 per cent of ETF buyers plan to increase their allocation to active ETFs over the next two to three years.

Currently, active ETFs make up only 4 per cent of the total APAC ETF market, but this segment is growing year by year. Watkins emphasised, “We believe the future of ETFs is undoubtedly active, and active is the revolution happening within the ETF and the asset management industry more broadly.”

The projected growth of active ETFs highlights a significant shift in investor preferences, reflecting a broader trend towards more dynamic and actively managed investment strategies. As the ETF market continues to evolve, active ETFs are expected to play a crucial role in shaping the future of investment portfolios, offering investors more tailored and potentially higher-performing options.

Just this month, Fidelity International announced the launch of four active ETFs for Australian investors. In making the announcement, Fidelity’s managing director, Lawrence Hanson said: “Making these four strategies available as ETFs allows investors easy access to some of our most popular funds in Australia, with solid long-term track records.

“The ETF structure enables us to offer our clients an alternative option on how they invest in our products.”

Just a week or so earlier, Macquarie Asset Management announced the launch of two new systematic active ETFs, designed to provide exposure to an active equity strategy with a fee structure aligned to performance.

According to the firm, the new range of core active ETFs come amid growing demand for “institutional quality portfolio building blocks” and will assist investors in accessing leading systematic investment capabilities via the ASX.

“Our aim with these new ETFs is to build a stable, more risk aware and balanced fund portfolio with significantly reduced impact from human bias.”

And in April, it was JP Morgan Asset Management (JPMAM) that announced the listing of its high conviction Global Select Equity Active ETF (JGLO) on the ASX.

Commenting on the launch, portfolio manager Helge Skibeli said JPMAM has observed a continued demand from investors for an active strategy that seeks to capture attractive returns without taking “undue” risk.

In December, JPMAM announced the launch of two more active ETFs, including the addition of a second fixed income ETF in the firm’s Australian line-up.