Money floods into active ETFs that look somewhat passive

investmentnews.com:

At first blush, a record $100 billion flood into actively managed exchange-traded funds this year raises a tantalizing prospect: A revival of stock picking even as only Big Tech names outperform the market. Yet a look under the hood of popular ETFs shows the boom is almost entirely taking place in passive-looking trades.

Active strategies have attracted nearly 25% of the $423 billion that’s flowed to U.S. ETFs so far in 2023 — a record share. Meanwhile, active ETFs are launching at a record pace, making up 96% of October’s new debuts as issuers race to stake claim to a quickly growing corner of the $7.5 trillion industry, Bloomberg Intelligence data show.

But those billions aren’t being sent to the likes of traditional bond and stock pickers. Rather, firms like Dimensional Fund Advisors and JPMorgan Asset Management have led the charge. Dimensional, the largest active ETF issuer with roughly $100 billion in assets, is known for its systematic funds. Meanwhile, JPMorgan has struck gold withits suite of covered-call ETFs, which employ options overlay strategies to generate additional yield. 

While not simple index-tracking stock funds, the kind of active management catching fire at the moment is much different than placing high-conviction calls, according to ETFGI’s Deborah Fuhr.

“You don’t find a lot of active managers taking a lot of active bets,” said Fuhr, the firm’s co-founder. “It’s not fundamental active, like doing a lot of homework on the stocks and deciding what to buy. It’s more systematic.”

Contrast that to Cathie Wood, whose $7.7 billion ARK Innovation ETF (ARKK) is the poster child for stock picking in the ETF wrapper. The fund’s portfolio of high-flying, disruption-themed stocks soared nearly 150% in 2020.