Assets in actively managed ETFs exceed $1 trillion worldwide By Reuters

By Suzanne McGee

(Reuters) – Assets in actively managed exchange-traded funds (ETFs) worldwide hit a record $1 trillion at the end of August, according to data provider ETFGI, boosted by lighter regulations and a wave of product innovations.

Active ETFs seek to outperform the indexes they are benchmarked against, including the , and Russell 1000 Growth Index. Bear Stearns launched the first active ETF in 2008.

While they represent just 7 percent of all global ETFs, active ETFs have accounted for 30 percent of all inflows into the funds overall over the past few years, Matthew Bartolini, head of SPDR Americas Research at State Street (NYSE:) Research, told Reuters in the latest episode of Inside ETFs.

A key growth catalyst, analysts said, was the 2019 regulation popularly known as the “ETF rule,” which simplified the complex process of obtaining approval for active ETFs from the U.S. Securities and Exchange Commission . Assets in the active ETF category have grown about 10-fold since 2019, according to data from ETF.com.

The growth continued this year. As of Aug. 31, active ETF assets are up 42 percent, data from ETFGI shows.

Looser regulations have also fueled innovation, Bartolini said, encouraging issuers to take new product approaches as they compete for investor dollars.

Active ETFs run the gamut from plain vanilla, like the BlackRock (NYSE: ) Large Cap Value ETF, to more niche offerings like the AdvisorShares Vice ETF, which invests in stocks of companies involved in the alcohol, tobacco and cannabis industries.

“These regulatory rule changes have actually accelerated some of the newer approaches that ETF issuers can bring to market,” Bartolini said.

Active ETFs include products that have been highly volatile, such as the Ark Innovation ETF, which rose 152% in 2020, only to fall 23% the following year. So far in 2024, it has lost 9.74%, compared with a 20% gain in the S&P 500. Some can also increase risk, such as leveraged ETFs tied to the performance of individual stocks like Nvidia (NASDAQ:).

Not all active ETF issuers are doing well either.

The 10 largest issuers accounted for 75% of active ETF assets, according to a Morningstar report earlier this year. The bottom half of active equity ETFs have just 3% of all group assets.

“ETFs that repackage old-fashioned stocks have struggled to attract assets,” Jack Shannon, managing research analyst at Morningstar, said in a report on Tuesday.

Tim Huver, senior vice president of ETF Servicing at Brown Brothers Harriman, said active ETFs may require investors to do more due diligence. However, he believes the category has reached a tipping point.

A Brown Brothers survey found that more than 90 percent of ETF investors planned to increase their allocation to active ETFs, Huver said.

“I think the second trillion will come much faster than it took us to get to the first trillion,” Huver said.