Exchange traded funds continue to gain in popularity as investors pour more money into the popular investment vehicle. In the month of September, ETFs gained another $55 billion in inflows, adding to the record-setting pool that had surpassed all of last year’s inflows into ETFs by the end of July this year, reported Morningstar.
With the rules changes last year that allowed for actively semi-transparent ETFs, increasingly more firms have moved into the market space, converting mutual funds into ETFs and adding their own variations on the popular fund type.
The gains by ETFs have been made in the face of extreme economic hardship, with the shuttering of a significant portion of the economy last year at the onset of the ongoing COVID-19 pandemic, but equity markets, which had fallen 34% in March of 2020, were up 34% above their pre-COVID levels as of the end of August 2021.
It has been meteoric growth, and ETFs have reaped the benefits, along with the entire asset management industry. In a report by McKinsey and Company, a management consulting firm, 2020 was the second-highest year in growth of assets under management (AUM) since the financial crisis, hitting an all-time high of $115 trillion globally.
North America experienced a 13% rise in AUM last year and had a 2.3% growth in net new flows, a number that far supersedes new flows in the five previous years. ETFs have been one of the fastest-growing vehicle types, due to the introduction of active semi-transparent ETFs and a variety of other strategies, as well as more companies entering the space.
With so many ETFs now on the market, there is a growing need by investors for guidance and the active insight that asset managers can offer, according to the authors of the report. They view ETFs as “a channel for revitalizing active management, spurred by investor demand for ease of access, tax efficiency,” and guidance by seasoned professionals.
Active management firm T. Rowe Price believes in the difference and benefits to active investing and active management. The firm currently offers eight actively managed ETFs for investors looking to join the movement into ETFs by large, established companies. The firm brings a bevy of experience and research to its products, with portfolio managers averaging over 20 years in investing each, as well as over 400 investment professionals dedicated to researching companies within ETFs.
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