[ I N D E P T H | E T F s ] favour cheaper products .
Jason Xavier , head of EMEA ETF capital markets at asset manager and ETF issuer , Franklin Templeton , says the global pandemic is another reason that the market ’ s uptake in ETFs has accelerated .
“ If you look at the volatility we saw last March at the outset of the COVID-19 pandemic , the subsequent successful operation of ETFs and the ETF ecosystem in allowing investors to source liquidity and reallocate capital intra-day was , for some , the final success hurdle needed to validate the ETF wrapper ,” he explains .
Pushing boundaries As the market has continued on its trajectory towards cheaper investment strategies in a riskier pandemic-driven environment , a new type of active ETF has been born . At face value , active ETFs tick all the boxes by offering risk averse investors who are looking to cut costs access to a version of active investment .
According to Howie Li , head of ETFs at asset manager and ETF issuer Legal & General Investment Management , active ETFs fall into two categories . These include thematic ETFs which are based on underlying stocks that have been selected through research , and discretionary active ETFs that have a fund manager making buying and selling decisions . “ Certainly , in the last three or four years the boundaries continue to be pushed as to what should be defined as an ETF and what is classified as an active strategy ,” says Li .
“ What we have done is active design , we select stocks that are specific to the cyber security universe , or robotic universe , because these are all opportunities that are not traditionally defined . We built these investment strategies in a way that is very similar from a client ’ s point of view to the active experience .”
This form of thematic ETF stock picking derives from the market ’ s journey away from how investors think about asset allocation . Previously , asset allocation for ETFs was based on regional indexes , however , as the market has become increasingly globalised this method has become sub-optimal . Wholly active ETFs that have a fund manager responsible for buying and selling have also seen an astronomical spike in interest . However , the interest is predominantly limited to the US . Founder , CEO and chief investment officer at ARK Investment , Cathie Wood , for example , has taken the market by a storm recently with 152.2 % returns on her actively managed ETF funds in 2020 . According to a recent report by FactSet , 2020 was the first year that there were more active ETFs launched in the US than passive ETFs that track an index , with actively
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