Investors increasingly choosing active ETFs, Capital Group exec says

Why assets of actively managed exchange-traded funds are growing so quickly in the U.S. market is a question that annoys Holly Framsted, director of ETFs for Capital Group, which launched its first suite of actively managed ETFs just shy of a year ago.

"And it annoys me because the implication that … active ETFs are growing fast right now for some specific reason implies that there was a choice before," Ms. Framsted said Monday during a panel discussion titled "Active Strategies: The Pendulum Has Swung," as part of the Exchange: An ETF Experience conference in Miami.

"Active ETFs have not been prevalent in the marketplace for a long time, "Ms. Framsted said, adding that historically the ETF vehicle had been offered only as an indexed instrument. "And so, when we think about why now, well there are far more active ETFs available today, so investors actually have the opportunity to make a choice, and we are seeing them increasingly make the choice of active in this environment."

While "investing in the index was a fine choice for a really long time," after last year's market challenges the clients with whom Capital Group speaks are increasingly concerned about their ability to "take on the role of active manager for their clients in their client portfolios," Ms. Framsted said.

Capital Group currently offers nine ETFs. Its ETFs have attracted $7 billion in assets in less than a year, which is "remarkable," Ms. Framsted said.

"It really to me comes down to the fact that we launched products that our clients were looking for," she said.

Monday's panel was moderated by Douglas Yones, head of exchange-traded products at the New York Stock Exchange. U.S. ETFs brought in roughly $620 billion of net cash flows in 2022, with actively managed ETFs accounting for 14% of those flows, Mr. Yones said.

"A lot of people don't realize how quickly ETFs are growing in the active space," he said.

Mr. Yones asked another panelist, Tim Coyne, global head of exchange-traded funds at T. Rowe Price, about mutual fund-to-ETF conversions and whether they were the "holy grail" for active management.

"I think it's not necessarily the holy grail, but I think it does offer a lot of interesting opportunities for different asset managers to enter the space," Mr. Coyne said. "But that being said, it's not necessarily as straightforward as many people may think."

Many different complexities are involved, "both operational and (the) impact to existing clients," he said.

In addition, thought needs to be given to whether the strategy is compelling. "Just transitioning a mutual fund into an ETF format doesn't necessarily mean you're going to have success," he added.