Investing in active ETFs, the opportunity to diversify: “These funds now amount to $10,270 billion”

The range of exchange-traded funds is expanding and is not limited to index funds. Traditionally, ETFs (exchange-traded funds) are associated with passive management. They are then linked to trackers, which are listed funds that track stock market indices. However, in this assortment there are a number of different means. There are passive ETFs, smart beta ETFs, and active ETFs. Active ETFs are actively managed funds that are publicly traded as passive ETFs. Therefore, the terms ETF and passive management are not synonymous. A story with Olivier Pacquier, Head of ETFs, Europe, Middle East and Africa, JPMorgan Asset Management.

Strong supply and demand

We are currently witnessing a real craze for ETFs. “It’s more of an acceleration than an evolution. The first ETFs appeared in the 1990s in the United States. At the end of 2021, 9,877 ETFs were registered on the stock exchange. has seen 31 consecutive months of net inflows into the asset class, which now stands at $10.27 trillion“, Olivier Pacquier clarifies.

This acceleration in demand for ETFs is mainly driven by three factors. The first factor is the demand for innovation. Investors are demanding more accurate and innovative exposures that are tailored to them. These include thematic investments, active ETFs or ESG funds registered on the stock exchange.

The other two factors relate to supply. Indeed, product offerings are responding to this demand with a growing number of ETFs aligned to European Union and Paris climate change benchmarks, or products linked to specific annual greenhouse gas reduction targets. “As for active ETFs, the proposal also adapts to products that outnumber active mutual funds in 2020 and 2021. Net sales of active ETFs have been impressive, with net flows in 2021 nearly three times higher than in 2019.“, Olivier Pacquier notes.

Advantages and dispelled myths

What are the benefits of active ETFs? The fact that these funds are listed on the stock exchange provides them with great transparency and great liquidity. “At any time, you can find out the total, exact and daily composition of your fund. These ETFs are also very flexible. They offer the option of multiple listings, multiple share classes, currency exposure and hedging. Their cost structure is not too far from that of passive ETFs. They make it possible to outperform indices through effective risk and return management.”emphasizes this manager.

Contrary to what one might think, these active exchange-traded funds are not only demonstrating their interest in limited markets. They also do well in broader markets such as the Eurozone, Asia and emerging markets, or even a global index, for example.

Another myth is that this type of exchange-traded fund is only used by a limited number of investors. “However, we see that this asset class is present in the portfolios of institutional investors, insurance companies, pension funds, as well as individual investors.– adds Olivier Pacquier.

Therefore, these funds take their place in portfolios as diversification tools. They are not “clones” of traditional fund management houses. They make it possible to increase portfolio liquidity while generating alpha (yield). It is also a way of integrating the concept of ESG into the portfolio. The range of ETFs that take an ESG approach is only growing. Therefore, active listed funds can be part of diversified portfolios with a long-term perspective. It should also be noted that at JP Morgan AM these active ETFs do not practice securities lending.

Check also on MoneyStore:

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– ETFs and trackers: between a priori and misconceptions

– Under the magnifying glass: which management style was the best in 2021? Active or passive?