In AUM, active ETFs increase by almost 70%

As investors look to the wrapper for transparency and liquidity, active ETF investing is becoming more and more popular

Active ETFs are growing; in Europe, assets held in these funds increased by almost 70% in the previous year.

Exchange-traded funds (ETFs) that are actively managed are becoming more and more popular, despite being perceived as passive instruments.

Assets under management (AUM) by European active ETFs rose 68 percent to £55 point 43 billion last year, according to HANetf research. According to HANetf's most recent Exchange-Traded Europe Q4 2024 report, 94 percent of European wealth managers intend to increase their use of active ETFs over the course of the upcoming year. Net inflows into European active ETFs totaled £19.46 billion during 2024.

Tom Bailey, head of research at HANetf, states that it would have been reasonable to assume that someone was employing passive, index-tracking strategies a few years ago if they claimed to use exchange-traded funds (ETFs) in their portfolio.

He goes on, "This is changing quickly." "ETFs are just a fund structure wrapper that can hold both passive and actively-managed strategies, as investors are realizing more and more.

An active ETF is what?

An ETF is just a wrapper, as Bailey notes. It can refer to nearly any kind of fund strategy. ETFs are distinguished by their real-time stock exchange trading and their creation and redemption mechanisms, which allow them to add (and remove) new shares in response to fluctuations in the market.

That implies that the price change of an ETF always reflects the price change of the assets it holds, without getting into the specifics of how the creation and redemption mechanism operates. This sets ETFs apart from investment trusts, sometimes referred to as closed-ended funds, which have a set number of shares and can, therefore, trade at a premium or discount to the net asset value, or NAV, of their assets.

However, ETFs consistently trade in accordance with their NAV.

As long as these conditions are met, an ETF can do nearly anything. They became well-known as tracker funds because they passively mirrored changes in the value of an index, like the SandP 500.

Because of this, they are frequently misunderstood as passive instruments, but an ETF has every right to pursue an active approach. The ETF will, in this case, mimic an actively managed portfolio that was put together by a qualified portfolio manager.

An actively-managed strategy encased in an ETF structure is the essence of an active ETF.

Check out these four active ETFs.

These four actively traded exchange-traded funds (ETFs) illustrate the variety of risk-on and risk-off strategies that are accessible to investors.

LON:CLMA is the Guinness Sustainable Energy UCITS ETF.

Long-term investors, especially those who have an active mindset, have a preference for the sustainable energy sector.

This exchange-traded fund (ETF) makes investments in businesses that produce sustainable energy, store sustainable energy, and electrify energy demand. Fossil fuel producers are not included.

Similar to investing in copper, this fund, which is actively managed by Guinness Global Investors, is essentially a long position on the energy transition.

LON:LVLG is the Invesco Global Active Defensive ESG Equity UCITS ETF.

Any investor who is concerned about stock market volatility can benefit from adding a defensive component to their portfolio with this active ETF. Its portfolio is allocated among businesses that meet low volatility screening criteria and strive for superior performance to the MSCI World Index. Businesses are also evaluated based on their ESG qualifications.

Nevertheless, the funds' holdings do contain some solid growth stocks, such as Nvidia and Microsoft.

UCITS ETF (LON:FPXS) is the Fidelity Pacific ex-Japan Equity Research Enhanced ETF.

One of the most affordable active ETFs available is this one, with fees as low as 0.2 percent. It follows a portfolio of Pacific-based stocks, excluding Japan, as the name implies.

In addition, Fidelity offers an actively-managed US equity exchange-traded fund (ETF) for the same fee. The Fidelity US Equity Research Enhanced UCITS ETF (LON:FUSS) is that one.

Jupiter Global Government Bond Active UCITS ETF (LON:GOVE).

Launched as an active ETF in February, this is an interesting approach. The strategy, which is overseen by Vikram Aggarwal, compares Jupiter's evaluation of national economies to the expectations of the market in order to find mispriced sovereign bonds from all over the world.

Active ETFs are a way to invest in bonds in addition to stocks.