The size of the actively-managed exchange-traded fund market has grown more than ten-fold in the past four years, to almost $2.5 billion, according to a report released by Lipper.
The report, written by Lipper analyst Sasha Franger, attributed much of this asset growth traces to newly launched active ETFs. As of March 31, there have been 44 active ETF initial public offerings.
Franger wrote that, as expected, active ETFs are more expensive than pure index ETFs from both a management fee and total expense perspective and for both equity and fixed income ETFs. For example, actively managed equity ETFs have median total expenses of 88.9 basis points compared to 52.5 bps for pure index ETFs.
The Lipper report also showed that active ETFs have underperformed, returning 2.78%, compared to their pure index peers, returning 3.20%, for the last four years. However, in the past year, active ETFs outperformed their pure index peers. Annual returns for active ETFs have been fairly stable in comparison to pure index ETFs. Median active ETF annual performance ranged from 1.31% to 10.83% for the last four years, while median performance for pure index ETFs has experienced huge swings and has ranged from -40.09% to 55.59%, coinciding with the economic downturn and recovery.
In the report, Franger wrote that directors boards for active ETFs should consider active ETFs separately from index ETFs for peer review in the contract renewal process.