Active exchange-traded funds (ETFs) are rapidly becoming the preferred investment vehicle among professional and intermediary investors, as evidenced by recent surveys highlighting growing allocations to these funds. According to Fidelity International, 37% of professional investors anticipate increasing their investments over the next 18 months. This sentiment is even stronger among intermediary investors, with 61% expecting to boost their exposure.
Despite surpassing $2 trillion in assets under management as of 2024, the European ETF market remains largely untapped, with active ETFs making up only 3% of the region's total ETF assets compared to 8% in the United States. Nevertheless, active ETFs are witnessing significant growth; the European market alone grew from $38 billion to $64 billion over the past year, reflecting increasing interest and demand among investors.
The growing appetite for active ETFs is supported by insights from 120 institutional investors and intermediaries across Europe and Asia, as found by Fidelity’s survey conducted alongside Crisil Coalition Greenwich. Currently, 24% of professional investors are using active ETFs, driven by their appeal for cost efficiency, alpha generation, and access to specialized investment areas.
Alastair Baillie Strong, global head of ETFs at Fidelity International, commented on the rising interest: "The anticipated growth in investor allocation to active ETFs reflects the evolution of preferences. Investors increasingly recognize the combination of flexibility and potential outperformance of traditional active funds with the advantages of ETFs, such as lower costs, transparency, and ease of access." This sentiment underlines the growing sophistication of investors as they navigate the market.
Adding to this dynamic, the global ETF market is projected to reach $20 trillion by 2030, growing at a remarkable 17% compound annual rate. Active ETFs are expected to proliferate even more rapidly, as more investors are inclined to adopt them, providing additional opportunities for growth and diversification.
"We faceongoing market challenges, including high valuations and uncertainty," said Baillie. "Given this backdrop, ETF selection is morecritical than ever. Our active ETF strategy leverages our long-standing research capabilities to help clients navigate today’s macroeconomic and geopolitical risks and enhances diversification and returns." This approach aims to bolster investor confidence amid fluctuative market environments.
On the active front, Motilal Oswal Mutual Fund recently launched its equity fund, applying a momentum strategy targeted at achieving long-term capital growth. With its investment focus primarily on equity and related instruments, the fund will also benchmark against the Nifty 500 Total Return Index. The management team, including Ajay Khandelwal, Varun Sharma, and Rakesh Shetty, employs multiple criteria like price change to select stocks demonstrating positive trends.
The impetus of momentum investing lies not only in favorable price trends but also emphasizes the qualitative and quantitative aspects of stock selection. Liquidity analysis and relevant data availability lead to the establishment of rigorous screening processes, assessing the top 1,000 companies by market capitalization.
Investors can look forward to this proprietary quantitative model will regularly rank stocks based on their momentum, ensuring continual adjustment of the portfolio to maintain exposure to high-quality, high-growth companies. The fund is being actively managed, allowing flexibility to adapt across categories and sectors when necessary.
This approach is appealing for those seeking long-term capital appreciation and aims to exploit the characteristics of momentum stocks, which can often outperform during dynamic market conditions. The continued rise of active ETFs exemplifies the shifting mindset toward more proactive and performance-oriented investment strategies.
Looking to the future, the ETF sector's potential for rapid innovation, particularly among active ETFs, is increasingly evident. With the market anticipated to grow, capturing institutional and intermediary interest, investors are well advised to stay informed about the shifts taking place within this space.
The burgeoning sector aims to combine time-tested investment principles with modern trading abilities, creating opportunities for growth and diversification across varying investment classes.
Active ETFs are set to not only reshape the investment strategies for seasoned pros but also open new horizons for novice investors as they gain access to sophisticated, transparent financial products. The steady momentum signals not only the advancement of the ETF industry but also heralds the arrival of more strategies aimed at responding to nuanced market demands.