Active ETFs, or actively managed exchange-traded funds, are expected to grow more quickly than passively managed ETFs, according to experts at McKinsey & Co. The firm predicts that active ETFs will increase from $10 billion in assets up to $500 billion within the next seven years. A spokesperson for the firm told Pensions & Investments that it’s not a question of, if active ETFs will take off, but when.
They expect the growth of active ETFs to be driven by major brand names like Franklin Resources, Inc. (NYSE:BEN), T. Rowe Price Group, Inc. (NASDAQ:TROW), and Fidelity Investments. Pooneh Baghai, co-leader of the Americas wealth management, asset management and retirement division at McKinsey & Company, Inc., said those three firms and several others are all in the process of getting permission from the Securities and Exchange Commission to begin managing active ETFs.
Pacific Investment Management launched its Pimco Total Return ETF last year, and in less than 12 months it grew to over $4 billion. Last year that ETF alone accounted for approximately 80 percent of active ETFs’ overall growth.
BlackRock, Inc. (NYSE:BLK), which is the biggest ETF provider currently with $556 million in assets invested in them, isn’t making active ETFs a priority at the moment. A spokesperson for the company said they would wait and see what will happen to them. BlackRock announced a surprise hike on ETF fees at the end of December for its iShares Americas Institutional ETFs.
Investment News spoke with RiverFront Investment Group president and CEO Peter Quinn, who said he uses both passive and active strategies in his clients’ portfolios. He said it could be possible that active ETFs would replace a mutual funds’ institutional share class in some cases.