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Investors Are Piling Into Actively Managed ETFs

Active funds still make up a sliver of the roughly $7 trillion ETF market—less than 6% of total assets—but have attracted about 30% of the total flows to ETFs so far this year, according to Bloomberg Intelligence. That follows a banner year for active ETFs in 2022, when they gathered roughly 14% of total flows. Investors are pouring money into actively managed exchange-traded funds, underscoring the appeal of active strategies after years of calls for passive index investing to take over. “Active ETFs are garnering more interest given the market volatility we’ve been in, and especially given there are so many leading players that people are familiar with that now offer an ETF version of their strategies,” said Todd Rosenbluth, head of research at VettaFi, a data and analytics firm. The popularity of active funds this year highlights their durability in the face of years of research showing actively managed stock funds underperforming broad indexes over long time horizons in the U.S. It also shows how ETFs are helping bring more complex trading strategies to the masses as individual investors buy stocks and ETFs at a record pace. JPMorgan’s Equity Premium Income ETF, which invests in defensive stocks and employs options strategies to generate income, has been the most popular active ETF by far in 2023, taking in $7.1 billion of fresh cash, according to FactSet. The fund, known by ticker symbol JEPI, provided a 12-month rolling dividend yield of 11.7% during the past year. It launched in 2020 and has exploded in popularity, roughly quadrupling its assets under management from $5.8 billion at the start of 2022 to $24.6 billion today. Another JPMorgan income-focused options strategy is among this year’s top 10 active ETFs for flows. Four of the other top 10 funds are fixed-income funds, while the remaining four are actively managed equity strategies. As economic conditions change, some active strategies are falling out of favor. Investors have fled State Street’s SPDR Blackstone Senior Loan ETF, which invests in loans issued by companies that typically have poor credit ratings. The fund’s $1 billion outflow this year is the biggest among active ETFs and represents about one-sixth of its assets at the start of the year. Cathie Wood’s ARK Innovation fund, perhaps the best known active ETF, has faced roughly $185 million of outflows. Ms. Wood’s fund, which invests mostly in unprofitable but fast-growing technology companies, has rallied 14% this year after a dismal 2022, in which it fell 67%.

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