One of the big themes to emerge in the world of exchange traded funds last year was the ongoing rise of actively managed ETFs. Of the $598 billion in new assets hauled in last year by U.S.-listed exchange traded products, a record $131 billion of that sum was directed to active ETFs.
The active ETF groundswell seen last year was aided by a slew of mutual fund-to-ETF conversions – something that’s expected to continue for the foreseeable future as mutual fund sponsors look to establish ETF footprints. A topsy turvy environment for bonds also contributed to elevated inflows to active ETFs, helped in part by the notion that active management can bear fruit for investors in the fixed income universe.
With more advisors and investors seeking better returns and unique exposures, it’s probable that more capital will flows into active this year, potentially breaking the inflows record notched in 2023.
“New money will also be drawn to active and alternative ETFs as alpha-seeking investors are increasingly choosing to allocate to these funds instead,” notes Morningstar analyst Mo’ath Almahasneh. “This is not to demerit some strategic-beta ETFs, but as the industry evolves, it is clear there are better business opportunities for ETF issuers.”
With those compelling points in mind, here are some active ETFs investors may want to monitor this year.
ARK Genomic Revolution ETF (ARKG)
Like other biotech ETFs, the ARK Genomic Revolution ETF (ARKG) had a rough go of things over the past couple of years. With the bloom from COVID-19 vaccine enthusiasm off the rose, once high-octane biotech stocks scuffled in 2022 and 2023. A lethargic mergers and acquisitions environment didn’t help, either. Those factors could change for the better this year, particularly if new drug approvals increase.
Specific to ARKG, which is actively managed, prior to 2022 the ETF had a well-established knack for outpacing broader healthcare benchmarks and it could be attractive this year as artificial intersection (AI) increasingly intersects with biotech and genomics.
“AI is delivering on the promise of dramatically improving the speed and efficiency of drug development. We are seeing an increase in AI-based clinical trials and a significant increase in the number of partnerships with AI tools players,” according to TD Cowen research. “We believe that this is only the beginning. And we see AI adoption and implementation becoming an increasingly larger part of biopharma industry strategy (our estimates show a doubling of AI focus the next 3-5 years).”
Pimco Active Bond ETF (BOND)
The Pimco Active Bond ETF (BOND) is one of the largest actively managed fixed income ETFs and one of the biggest active ETFs of any stripe. This $4 billion fund is the ETF offshoot of one of the most storied fixed income mutual funds, meaning BOND investors get access to some of the sharpest minds in the bond universe.
BOND is an intermediate-term fund, meaning offers compelling diversification properties because intermediate-term bonds are usually less correlated to equities than are short- and long-dated bonds. Should the Federal Reserve proceed with lowering interest rates this year, BOND could be a winner.
“This income-oriented fund is designed to deliver a better yield than the broad bond market without shouldering too much risk,” according to Morningstar. “It has mostly achieved that objective, thanks in part to its strategic approach that led to a focus on mortgage pools in the portfolio. The strategy’s duration can range from 2.0 to 8.0 years, but it tends to keep that metric below its category peers.”
Dimensional US Large Cap Vector ETF (DFVX)
The Dimensional US Large Cap Vector ETF (DFVX) is new on the active ETF scene having debuted in November, but it hails from an issuer steeped in active management success. DFVX, which attempts to beat the Russell 1000 Index, features a favorable fee of 0.22% year.
As of the end of November, DFVX held 270 stocks with a weighted average market capitalization of $378.77 billion.
The active ETF is a large-cap blend fund and allocates about 35% of its weight to technology and industrial stocks. Those are the only sectors with weights in the teens.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
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Todd Shriber
Todd Shriber got his start in financial markets as a reporter with Bloomberg News. Later, he became a trader at a Southern California-based long/short hedge fund where he specialized in trading sector and international ETFs leading up to and during the financial crisis. He would later become the web editor at ETF Trends. Currently, he analyzes, researches and writes on ETFs for a variety of Web-based publications and financial services firms.Shriber has been quoted in the Barron's, CNBC.com and the Wall Street Journal. His work has been published on Web sites such as Benzinga, ETF Daily News, ETF Trends, MarketWatch, Fox Business and Nasdaq.com.
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