The world of exchange-traded funds — still synonymous with passive investing — is turning into a battleground for Wall Street's biggest players as they compete for a slice of the active-management industry.
Active products have scooped up almost a third of the $49 billion flooding into ETFs this year, as stock pickers take on new luster in an era of Federal Reserve policy tightening and investors funneling cash ever more into
The deluge of new cash is kicking off an arms race of sorts among issuers. With the likes of BlackRock and Vanguard largely controlling the passive market thanks to virtually zero-cost S&P 500 funds, firms such as JPMorgan Chase and Dimensional Fund Advisors are locking horns at the top of the active leaderboard.
And the
"We are laser-focused on active management. That's our core competency, that's what we do at Morgan Stanley Investment Management," Anthony Rochte, Morgan Stanley's global head of ETFs, said in a Bloomberg Television interview. "Longer-term, you can expect to see more active from us. I'm not sure we're going to go to almost zero with the passive ETFs."
Those are fighting words from the Wall Street giant, which commands about $5.5 trillion of assets across its wealth and investment management divisions — including hundreds of billions in existing ETFs. The potential that Morgan Stanley might eventually redeploy some of those assets to its own funds makes it a clear threat to the current leaders of the active ETF business.
JPMorgan Asset Management's Bryon Lake projects that active ETFs in the U.S. will grow
"Active delivered through the ETF wrapper, we think, is really going to be important," Lake, the global head of ETF solutions, said on Bloomberg Television's ETF IQ. "Up to $3 trillion in the next five years could be in active."
Active ETFs are booming as investors shun often pricier, slower to trade mutual funds for the easier-to-access structure. At the same time, rule changes in 2019 made it far simpler for managers to bring active funds to market, while the likes of Cathie Wood demonstrated the potential depth of investor appetite.
Meanwhile, the Fed's historically aggressive tightening campaign unleashed volatility across asset classes last year, boosting the appeal of active strategies as they delivered
Morgan Stanley faces stiff competition. Currently, JPMorgan controls the two largest active ETFs on the market: the $24.4 billion JPMorgan Ultra-Short Income ETF (ticker JPST) and the $21 billion JPMorgan Equity Premium Income ETF (JEPI).
Both funds absorbed record inflows last year as the Fed's quest to quell endless inflation shredded returns across asset classes, boosting the allure of steady income streams delivered by both products. JEPI
Though JPMorgan boasts the biggest actively managed products, quant giant Dimensional holds the crown for largest active ETF issuer. The Austin, Texas-based manager controls roughly $82 billion across its lineup of 30 funds, less than three years after its first ETF began trading.
Dimensional's growth was
Flipping mutual-fund assets to an ETF hasn't always proved a recipe for success, but the quant behemoth has seen significant positive net inflows since
As the competition for active ETF dominance heats up, Lara Crigger at data-provider and research firm VettaFi expects more firms to attempt conversions and more big flows into active ETFs.
"I think we're going to see a lot of flows going into these issuers that can bring their own assets to the table," Crigger said on Bloomberg Television's ETF IQ. "If anybody can do it, it would be Morgan Stanley."