Active ETFs Have Array of Advantages

Actively managed ETFs, particularly in fixed income, are experiencing rapid growth, driven by their tax efficiency, lower fee structures compared to traditional mutual funds, and advisor shifts. The ALPS/SMITH Core Plus Bond ETF (SMTH) highlights this trend, accumulating nearly $2.2 billion in assets under management in under two years. This surge reflects a broader industry pivot, with active managers aggressively launching new ETFs to capture inflows as these vehicles become a priority for asset allocators, contrasting with outflows from active mutual funds.

Analysis

Actively managed ETFs, particularly within the fixed income sector, are experiencing significant growth, driven by their inherent tax efficiency and lower fee structures compared to traditional mutual funds. This trend is further fueled by advisors shifting allocations and issuers converting existing mutual funds into the ETF wrapper. The average fee paid by investors in ETFs is 0.40%, notably lower than the 0.58% for mutual funds, providing a clear cost advantage.

The ALPS/SMITH Core Plus Bond ETF (SMTH) exemplifies this momentum, accumulating nearly $2.2 billion in assets under management in less than two years, while the ALPS Intermediate Municipal Bond ETF (MNBD) is also gaining traction. Both funds benefit from being established players in a segment increasingly prioritized by asset allocators, reflecting a broader industry pivot towards these vehicles.

Active managers are aggressively launching new ETFs, with over 1,300 introduced since the start of 2024, largely in response to revenue opportunities. This contrasts sharply with active mutual funds, which are experiencing outflows, underscoring the competitive shift in asset management towards the ETF structure. The strong positive sentiment surrounding these developments suggests continued inflows into the active ETF space.

Key Decisions for Investors

• Investors should consider increasing exposure to actively managed fixed-income ETFs, given their demonstrated tax efficiency, lower fee structures, and strong asset-gathering momentum.
• Evaluate specific high-growth active ETFs like SMTH and MNBD for potential portfolio inclusion, noting their rapid asset accumulation and competitive positioning.
• Monitor the continued migration of assets from active mutual funds to active ETFs, as this structural shift presents ongoing opportunities and competitive pressures within the asset management industry.