ETFs, Investments

Innovation key to active management success

The active management industry will survive and thrive over time, but competition from the passive exchange-traded fund (ETF) sector means the onus is on the former to continue to deliver innovation, according to BetaShares.

BetaShares chief executive Alex Vynokur said the success of active management in the future will depend on asset classes that will not be easy to disrupt through indexing and quantification.

“We certainly think high-conviction active management will continue to thrive,” Vynokur said.

“So managers who really aim to deliver true alpha as opposed to just index-hugging exposure [will succeed].”

Vynokur made the comments at the recent launch of BetaShares’ first edition of the quarterly “BetaShares Global ETF Review 2018”, which looked at key trends and developments in the industry outside Australia.

The report showed in the United States flows into the funds management industry have, for the past five years in particular, been into passive investment vehicles at the expense of active funds, with ETFs being the preferred vehicle.

The data showed cumulative US net flows between 2014 and 2018 for passive ETFs were $1491.1 billion, compared to $58.2 billion flowing into active ETFs. Passive mutual funds attracted net flows of $944.8 billion, while active mutual funds recorded outflows of $1072.1 billion.

“Global asset managers are finding that their core businesses have been in outflows now year on year for many years,” Vynokur said.

“And interestingly enough a number of traditional global active managers have actually launched ETFs.”

He noted firms such as Legg Mason, Fidelity and Franklin Templeton have introduced ETFs as part of their offering.

“And obviously quite famously many years ago BlackRock acquired the iShares business to really catapult themselves into the ETF business,” he said.

The report also said with such a large number of ETF products around the world, there has been considerable coverage of the number of indices and ETFs being launched and comments about an ETF bubble.

However, the report provided figures on the number of funds launched in the US in 2018, revealing there were 262 new mutual funds and 239 new ETFs.

“When looking at the facts, however, we believe that some of this commentary is misplaced,” it said.

“Even in a ‘booming’ ETF industry there were actually more traditional mutual funds launched in the US market than ETFs last year.”

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