Actively-managed ETFs all grown up

June 19, 2018

It wasn’t that long ago that actively-managed ETFs were considered a contradiction that flew in the face of what most investors believed exchange traded funds were all about.

Now they are one of the investment industry’s fastest growing segments and a legitimate option for those who believe active security selection will benefit their portfolios in the long run.

This is the case in several markets around the world but particularly here in Canada where disclosure rules regarding fund holdings are generally seen as more favourable to actively-managed ETFs than in some other countries such as the United States.

As a result, the universe of Canadian-listed active ETFs has more than doubled since the end of 2015 and accounted for 22 of the 45 new funds launched this year through March, according to Strategic Insights, an independent research firm.

Active ETFs also ended Q1 of this year with a three-year compound annual growth rate (CAGR) of 46%, while passive ETFs registered a CAGR of 18.0% over the same time period. That’s good enough to bring its share of assets under management to $29.1 billion or 19.2% of total ETF assets (see chart).

More recently, 12 of the 20 new ETFs launched in May were also actively managed and going forward, we believe they will continue to proliferate as investors who use exchange traded funds become even more sophisticated in their understanding of the potential benefits.

This will be driven in large part by the demands of an increasingly uncertain market environment and growing necessity among ETF investors for active strategies that create better opportunities for risk-adjusted returns.

But growth may also hinge on possible changes to the regulatory backdrop that could open up the sale of exchange traded funds to Mutual Fund Dealers Association (MFDA) representatives. Already comfortable with active management as a way to build wealth, active ETFs could be a natural fit for this group of advisors.

Florence Narine is senior vice president, head of products at AGF Investments Inc. She is a regular contributor to the AGF Perspectives blog.

Commentaries contained herein are provided as a general source of information based on information available as of June 15, 2018 and should not be considered as personal investment advice or an offer or solicitation to buy and/or sell securities. Every effort has been made to ensure accuracy in these commentaries at the time of publication; however, accuracy cannot be guaranteed. Market conditions may change and the manager accepts no responsibility for individual investment decisions arising from the use of or reliance on the information contained herein. Investors are expected to obtain professional investment advice.

AGF Investments is a group of wholly owned subsidiaries of AGF Management Limited, a Canadian reporting issuer. The subsidiaries included in AGF Investments are AGF Investments Inc. (AGFI), Highstreet Asset Management Inc. (Highstreet), AGF Investments America Inc. (AGFA), AGF Asset Management (Asia) Limited (AGF AM Asia) and AGF International Advisors Company Limited (AGFIA). AGFA is a registered advisor in the U.S. AGFI and Highstreet are registered as portfolio managers across Canadian securities commissions. AGFIA is regulated by the Central Bank of Ireland and registered with the Australian Securities & Investments Commission. AGF AM Asia is registered as a portfolio manager in Singapore. The subsidiaries that form AGF Investments manage a variety of mandates comprised of equity, fixed income and balanced assets.