Research in Finance’s Post

Active ETFs are hot right now. In the US they have grown from less than €200bn in 2020 to over a trillion dollars today. European asset management has been slower to shift as the inherent tax benefits in the US for the ETF structure were not present in Europe. But, they aren’t a complete unknown, active ETF assets stand at around €50bn in Europe, less than 3% of industry assets.  However, the times they are a changing. 2025 is set to become the year of active ETFs. Daily more groups are announcing plans to launch or investigate launching active ETFs and our research suggests they are right to consider this approach, 42% of fund selectors expect ETFs to be preferred to mutual funds in 5 years, with a further 42% expecting complementary roles. 7% expect ETFs to completely replace mutual funds – much higher in some countries. That’s almost 1 in 10 investors across Europe seeing no future for mutual funds. There’s a big variety in how they are defined by investors, who wants them, what they want, tracking error targets and where fund selectors are going to get ETF information. Let me know if you want to catch up on the topic, it seems to come up in every meeting in the past month. I’ll leave the last word to this private banker in our latest study who sees an opportunity but also defines active ETFs in what may be a challenging way for many managers launching today – there’s a big job to do in defining active ETFs: “An interesting development that we see is the trend in active ETFs. And what I mean by that is that these products, these active ETFs are very, very similar to the additional passive ETFs, but generally have some diversification related to the benchmarking, that they overweight or underweight certain sectors or securities, but with a very limited tracking error.”