The next level for ETFs is actively managed funds, fund managers say

Actively managed exchange-traded funds are in the spotlight as ETF managers look for new strategies beyond passive funds.

“The fact is that all passive strategies are defended,” Nate Geraci, president of the ETF Store, told CNBC’s ETF Edge this week.

“But with active management, you can differentiate by assuming that the active manager is actually doing something materially different from the underlying benchmark,” he added.

While active ETFs have been around since 2008, their popularity took off in 2019 after the SEC eased launch restrictions. As of June 2023, there are more than 1,100 active ETFs, according to Morningstar.

So far this year, the number of active ETFs launched has already outnumbered passive ETFs by a ratio of three to one, according to Morningstar.

“And when you look at the mix of those launches, I show that about 75% are actively managed and those are all strategies from some of the biggest names in active management,” Geraci said.

Examples of active ETFs launched this year include the Capital Group Core Balanced ETF (CGBL), Franklin Templeton’s Western Asset Bond ETF (WABF), and the T.Rowe Price Value Growth ETF (TGRT).

“These are truly the biggest asset management brands that continue to leverage the ETF package,” said the ETF Store president.

GMO just launched its first active ETF this week, the GMO US Quality ETF (QLTY).

Although this is the company’s first active ETF, GMO has operated a traditional actively managed mutual fund called the GMO Quality Fund (GQETX) since 2004.

“We run a quality strategy that outperforms the bear market, in part due to its historical valuation direction, but can also participate in growth in a year like this,” said Tom Hancock, head of targeted equities and portfolio manager at GMO. same interview.

“I think what our clients appreciate so much is that we have benefited from universally protected capital in a relative sense in down markets,” he added.



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