Bull vs. Bear: Active ETFs Rising — Meaningful or Mirage?

Bull vs. Bear is a weekly feature where the VettaFi writers’ room takes opposite sides to debate controversial stocks, strategies, or market ideas — with plenty of discussion of ETF ideas to play either angle. For this edition of Bull vs. Bear, Nick Peters-Golden and James Comtois debate whether this is truly the year active ETFs turned pretty.

Nick Peters-Golden, staff writer, VettaFi: Hi James! Active ETFs have made plenty of headlines this year, with the ETF ecosystem once again swooning at the prospect of meaningful outperformance by experienced managers. I thought it was about time we VettaFi writers took a closer look at active management. I think there’s a real story behind the “Year of Active” narrative that investors and advisors should be accounting for looking ahead to 2024.

Active ETFs: By the Numbers

Let’s take a closer look at the success active ETFs have had this year and the milestones they’ve hit. First off, let’s look at the number of overall ETF launches and the role of active ETFs therein.

ETF launches are on track to set a record this year, having last done so in 2021. As of October this year, 391 new ETFs had launched compared to just 311 at the same time in October 2021. So what’s driving that big jump in ETFs? Active exchange traded funds are. Nearly 75% of ETFs launched this year have been active.

That’s one of the biggest jumps we’ve seen in active ETF launches since they first burst onto the scene in 2008. We may be witnessing another era of active ETF growth and development that reflects the strong flows actives have seen this year, too.

Despite making up just about 6% of total net assets, active ETFs picked up almost one-third of inflows in September. That tracks with active ETFs representing about 6% of ETF AUM, too, picking up about 30% of flows to start 2023. Active strategies also saw 40 consecutive months of net inflows as of the end of July.