Why investors are flooding into active ETFs

Actively Managed ETFs, or active ETFs, had a breakout year in 2022. While they only represented 5% of assets under management, they accounted for over 20% of the net flows for 2022, according to Bryon Lake, J.P. Morgan Asset Management Global Head of ETF Solutions. Lake sits down with Julie Hyman and Brad Smith to discuss the potential of ETFs for the remainder of the fiscal year.

Video Transcript

- Now, one of the things that you're sort of alluding to is this shift that we've seen in ETFs towards a more active management within the ETF wrapper. And the industry has been pushing that way for a little while. We've seen growth. It's still a small percentage of the overall total. What do you think would sort of tip the scales or cause the active ETF game to gain a little more momentum?

BRYON LAKE: I think the scales have tipped. I think active ETFs had a breakout year in 2022. Here's the stats. And you're right, active ETFs only make up about 5% of overall ETF AUM. So we've got about $7 trillion in ETF assets here in the US. About 5% of that is in active ETFs.

Going into 2022, active ETFs were 5%. They accounted for more than 20% of the net flows across 2022, last year. And that continued in 2023. In fact, year to date, active ETFs are accounting for about 30% of the net flows into the ETF space. So investors are absolutely embracing active ETFs.

- But it's still only 5% of the total?

BRYON LAKE: Yeah, but, like, think about the market rallied this much. So it's growing as part of the pie. The pie is growing at the same time. Now, you're making a really interesting point, and I think this is where the penny finally dropped for investors.

The ETF is a technology. You used the word wrapper. The ETF is a technology. It trades throughout the day. It's tax efficient. It's transparent. It has all these other benefits that investors really appreciate. I talk about it gives investors control. The ETF wrapper gives them control.

What you put inside of that is just as important. And, to your point, you've had a lot of indexes that have been delivered through the ETF wrapper, and that's a great use in portfolios as well. But when you can use proprietary active management, like what J. P. Morgan does-- we pride ourselves on that.

So we have a thousand investors around the world. We invest $400 million in active management and research every single year. Our proprietary active management, we're taking our best investment capabilities, the best thinking across J. P. Morgan, and then delivering it through the convenient ETF wrapper.

And I think investors are now saying, oh, I think this is a really important piece of how I can build better portfolios. And that's why we're seeing the flows that I referenced earlier.