It could be an A-list year for active management.
Douglas Yones, head of exchange-traded products at the New York Stock Exchange, says 2020 could be a breakout year for actively managed funds as investors seek out more targeted strategies.
“I know we’re pretty early in 2020, but I will say this could be the year of active,” Yones told CNBC’s “ETF Edge” on Wednesday. “What I mean by that [is] over half of the ETF launches year to date have been actively managed ETFs.”
While only two of those launches have been for active nontransparent ETFs, or ANTs — a newer structure in which fund managers can disclose their holdings quarterly instead of daily — the trend suggests a clear demand for active strategies, Yones said.
“We’re really engaged now with a lot of conversation about bringing those products to market,” he said.
With more than $4 trillion in assets under management currently flowing through the U.S. ETF market, “the reality is active is performing,” Yones said. There are roughly 280 actively managed ETFs in the United States, about 12% of the total 2,304.
“We’re seeing net cash flow into those products — even just looking year over year at actively managed ETFs, about a 36% increase in assets under management,” Yones said. “For those investors that are looking for an active structure, they do seem to want to access that in an ETF wrapper. And for the issuer of active management, the ETF wrapper offers a lot of benefits. They tend to be lower cost and they offer global distribution. So, there’s a lot of reasons on both sides of the fence why an active manager or investors want to be involved with an ETF wrapper.”
This year’s market has been “very active” on the ETF front in general, Yones said. Year to date, net cash flows for ETFs are near $188 billion, 87 new products have launched and new issuers including BNY Mellon and Allianz have made moves to enter the space, he said.
“There’s still a lot of green field opportunity for new managers to come in, and regardless of a volatile market, the reality is that ETFs have performed exceedingly well,” Yones said. “They’ve brought in net cash flow every single month. So, even in the midst of the sell-off in March, we saw equity ETFs bring in probably about close to $18 billion that month. So, ETF investors … [are] certainly still active regardless of market conditions.”
Part of that could be tied to trading platforms’ race to zero in late 2019, said Salvatore Bruno, chief investment officer at IndexIQ.
Brokerage giants including TD Ameritrade, Charles Schwab, Interactive Brokers and E-Trade slashed trading commissions on U.S. equities, options and ETFs late last year in an effort to keep their customer bases and continue to scale.
While the move didn’t necessarily encourage more active trading among retail investors, “it definitely enabled it,” Bruno said in the same “ETF Edge” interview.
“I think people who were looking to be nimble found that they did not have to worry about transaction costs as an impediment,” Bruno said. ”It enabled investors to move even more quickly throughout these more volatile times into and out of ETFs.”
Yones added that that mobility can come in handy when hard-to-trade market groups such as bonds are collapsing, like they did in March.
“If you want to tap into, let’s say, high-yield bonds or muni[cipal] bonds, it can be very difficult in times of stress to trade the underlying bond, yet individual investors on some of those platforms with zero commissions had the ability to go in and trade,” Yones said. “Whether … they wanted to own more exposure or reduce their exposure, they could do so through ETFs with zero commission at a time when the underlying bonds were struggling to trade.”