David Botset, Managing Director and Head of Innovation and Stewardship at Schwab Asset Management, and Chris Murphy, Head of ETF Specialists at T. Rowe Price, joined Keith Black, Managing Director of RIA Channel, to discuss investor preferences and the growth of active ETFs.
Schwab has been surveying ETF investors for over a decade. A consistent finding of the surveys is that investors prefer ETFs that provide the desired exposures from good managers at low costs. Botset states that investors might want to allocate to active ETFs in less efficiently priced market sectors, including small-cap and international stocks, as well as fixed income. Efficiently priced large-cap US stocks may be best accessed through a passive ETF. One of Schwab’s newest products is the Schwab Ultra-Short Income ETF (SCUS), which accesses a market segment that is challenging to index.
Murphy notes that 30% of ETF flows and 80% of ETF launches in 2024 were for actively managed strategies. When advisors ask how to implement active ETFs in a portfolio with holdings in passive ETFs, Murphy advises that investors should consider which asset classes and strategies may be a better fit for active or passive strategies.
As a fundamental, bottom-up manager, T. Rowe Price has been increasing the number of actively managed funds that are available as ETF offerings. Murphy states that T. Rowe is interested in offering ETFs in underrepresented market segments, such as small and mid-cap strategies and sector-focused objectives. Active management is critical in the technology sector.
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