INVESTING
Morningstar , while there are only 1,619 active funds .
“ The number of actively managed exchange-traded funds opened to investors has been soaring ,” says Morningstar analyst Gabe Alpert . “ If the trend continues , the number of active ETFs in the U . S . could catch up with index-tracking funds within the next few years .”
Indeed , the actively managed ETF trend has legs . Eighty-six percent of the 1,000 ETF-owning respondents of a survey by Schwab for its 2024 “ ETFs and Beyond ” report said they ’ re highly or somewhat likely to pursue actively managed ETFs in the next two years .
One of the biggest quakes in the ETF world this year was the Securities and Exchange Commission ’ s approval of spot-bitcoin exchange-traded funds . Digital asset ETFs have since drawn strong inflows this year , as well as interest from young investors and RIAs . Fifty-nine percent of Gen Z respondents to Nasdaq ’ s recent “ 2024 ETF Retail Investor Survey ” and 57 % of millennials expressed interest in digital assets , while 563 RIAs and other professional investment firms reported owning $ 3.5 billion in bitcoin ETFs as of May . Hightower Advisors reported owning $ 68 million of bitcoin ETFs .
The total bitcoin ETF universe now has $ 60 billion in assets , according to Etf . com . The largest bitcoin ETF , with a reported $ 27 billion , gathered just since these funds were OK ’ d in January , is the iShares Bitcoin Trust ETF ( IBIT ), which has returned 84 % this year as the token ’ s price has soared . Market watchers have made big predictions about a further rise in the price of bitcoin if the incoming Trump administration ushers in crypto-friendly regulations .
Buffer ETFs , otherwise known as defined outcome ETFs , use options to cushion investors against some downside risks of market losses ( while also capping upsides ). These funds are in such high demand that the interest prompted the world ’ s largest asset manager , BlackRock , to launch a series of them , starting this summer with the iShares Large Cap Max Buffer Jun ETF ( MAXJ ), the first in what will be a series of four ETFs . Asset managers launched 74 buffer exchange-traded funds this year , up sharply from 14 two years ago . Buffer ETFs charge higher fees than passive index funds , but they ’ re ideal for investors who want to participate in the market rally while getting downside protection .
BlackRock is also among several big firms racing to offer investors access to private markets through ETFs , a nascent but large market at $ 13 trillion . The firm paid $ 3.2 billion for Preqin , a provider of alternative-asset data , to index the private markets , and at the end of October Black- Rock was also reportedly in talks to buy private credit firm HPS Investment Partners . In September , State Street and Apollo Global Management filed to launch an
BlackRock is among several big firms racing to offer investors access to private markets through ETFs , a nascent but large market at $ 13 trillion .
actively managed exchange-traded fund that will invest in public and private credit . It ’ s called the SPDR SSGA Apollo IG Public & Private Credit ETF . Morningstar called this the first ETF of its kind .
BlackRock is also benefiting greatly from the global demand for fixed-income ETFs . It manages more than $ 1 trillion in these vehicles globally , which is up nearly 40 % since 2021 , according to Steve Laipply , the firm ’ s global co-head of iShares Fixed Income ETFs . In June BlackRock also expanded its iShares iBonds ETF franchise with the industry ’ s first 20- and 30-year Treasury defined maturity bond ETFs .
“ With the event risk of elections behind us , we expect investors to continue to deploy cash into markets and believe there is enormous opportunity in fixed income today ,” Laipply said in an interview with Financial Advisor . “ Yields are at record highs , making income generation poten- tial very attractive . You can now do a lot more on the income side of your portfolio for far less risk .”
Smart Thematic ETFs Picks
Don ’ t forget thematic ETFs , whose strategies are to invest in emerging trends — for instance clean energy or artificial intelligence . Morningstar ’ s recent global thematic funds landscape report noted that worldwide assets in thematic mutual funds almost doubled to $ 562 billion from $ 269 billion in the five years ended June 2024 . But it hasn ’ t been a banner year for these funds : The research firm also noted that thematic fund closures outpaced new launches in the U . S . in the first half of 2024 .
But some ETF analysts point to a few themes that might work well into 2025 and beyond . In a recent webinar , Richard Bernstein , investment manager at the firm bearing his name , touted his firm ’ s fund , the First Trust RBA American Industrial Renaissance ETF ( AIRR ), which capitalizes on deglobalization and reindustrialization in the U . S . The fund has a five-star rating at Morningstar . It has $ 1.7 billion in assets under management and produced an average annualized return of 14.75 % for the 10 years ended October 31 , Morningstar said .
Scott Helfstein , head of investment strategy at Global X ETFs , likes sectors such as defense technology and infrastructure — because these sectors have bipartisan political support and benefit from government spending , ensuring steady cash flows for the companies involved . The Global X Defense Tech ETF ( SHLD ), which invests in companies that are benefiting from global conflicts , is up 22 % over the past year . Global X has two infrastructure plays : the Infrastructure Development ex-U . S . ETF ( IPAV ) and the U . S . Infrastructure Development ETF ( PAVE ). The latter is up 30 % year-to-date . Helfstein adds that his firm , based in New York , is enjoying its “ secondbest year for asset gathering ,” having seen $ 6.5 billion in inflows in 2024 and passing $ 50 billion in AUM .
Vance Howard , the CEO and portfolio manager of RIA firm Howard Capital Man-
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40 | FINANCIAL ADVISOR MAGAZINE | DECEMBER 2024 WWW . FA-MAG . COM