Originally published April 24, 2024
Active ETF strategies have stormed the scene over the past year and are growing at a dizzying pace.
First-quarter net inflows into actively managed ETFs surged past the previous record to $66 billion. That accounts for roughly one third of all first-quarter ETF flows despite comprising a little less than 9% of the entire ETF market.
And the flows show no signs of slowing down anytime soon – with the BlackRock U.S. Equity Factor Rotation (DYNF) and JPMorgan NASDAQ Equity Premium Income ETF (JEPQ) among the more obvious winners to kick off the year.
Riding the Active Wave
Dimensional is the largest active ETF issuer in the U.S. and has been riding the wave of this success. They've taken in more than $10 billion in net flows year-to-date. All 38 of Dimensional’s funds have seen net inflows over the past month and so far for the year. In fact, 14 of the top 50 most popular active ETFs for both the past four weeks and the year have been Dimensional funds.
The company’s largest ETF, the Dimensional U.S. Core Equity 2 ETF (DFAC), boasts more than $27 billion in assets under management, and has seen north of $1 billion alone in net inflows in 2024.
Despite being a latecomer to the ETF game, Dimensional crossed the $100 billion threshold in total assets in under four years, thanks in part to steadily expanding its client base to institutions.
Nicole Hunter, Head of ETF Capital Markets at Dimensional, attributed the success of Dimensional’s active implementation strategy to its broad diversification, low turnover and low cost.
“Active is a very large umbrella,” she said. “We're not stock picking – it's not what we do.” Rather, Dimensional takes a highly disciplined, systematic yet flexible approach to rebalancing securities on a daily basis.
Going Global – With an Active Twist
Part of the allure of active ETFs lately has been the desire to try to systematically capture returns in deeply mispriced markets. Given the richness of U.S. equities, investors are increasingly looking beyond the borders for under-the-radar firms and undervalued opportunities.
Global equity markets have underperformed the U.S. for the better part of last year and are still trading at deep discounts compared to their American peers. Investors are getting more eager to make bets on international developed and emerging markets – particularly after the Japanese stock market hit its first record high in decades, and India moves toward a more industrialized future.
Pockets of strength have developed in global equity ETFs, such as the Dimensional International Small Cap ETF (DFIS), which has seen more than $650 million in net inflows year-to-date – making it one of the most popular active ETFs out there.
Top 10 Most Popular Global Active ETFs
Also dotting the list are Dimensional's International Core Equity Market ETF (DFAI), International Core Equity 2 ETF (DFIC) and International Value ETF (DFIV) -- all of which hold more than 20% of assets in Japan, as investors remain cautious on China.
“Investors can benefit from understanding that they don’t need to predict which countries will deliver the best returns during the next quarter, next year or next five years,” Hunter added.
Capital Group and Avantis are also among the biggest beneficiaries of growing demand for global exposure, particularly with an active tilt.
The Capital Group Global Growth Equity ETF (CGGO) has accrued more than $500 million in new money this year and offers a much more focused, best-ideas approach – holding just 84 securities, compared to the broad swath of 3,300 securities held by DFIS.
Then there’s the Avantis International Small Cap Value ETF (AVDV) and the Fidelity International Equity ETF (FENI) – which have brought in $400 million and nearly $50 million in net inflows, respectively.
Mean reversion is a powerful force, and many are banking on a significant catchup across the global markets to boost returns abroad.
For more news, information, and analysis, visit the Active ETF Channel.
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