Chris Murphy, Head of ETF Specialists at T. Rowe Price, joined Julie Cooling, Founder and CEO of RIA Channel, to discuss how advisors are using actively managed ETFs.
When Murphy joined T. Rowe Price in 2021, the firm offered four active ETFs totaling $200 million in assets under management (AUM). Today, those totals have risen to 24 ETFs with $20 billion in AUM. Murphy notes that advisors are well educated on the merits of active ETFs and have progressed to asking questions on portfolio implementation. Increasingly, active ETFs are being added to model portfolios that previously held only passive ETFs.
Murphy states that there is a resurgence in active management, with newly launched ETFs attracting advisors to asset management firms that they would not have previously considered when only mutual funds were offered. Advisors are willing to invest in active management via ETFs in specific market sectors or styles with the potential to generate alpha.
Actively managed products are pushing the boundaries of ETF innovation, including derivative strategies and sector ETFs. Derivative strategy ETFs are approaching $500 billion in AUM, including covered call, return-enhancing, and downside protection strategies. While passive ETFs must invest in securities according to specific rules, active funds have the flexibility to invest outside the benchmark, such as in foreign or private securities. A significant area of growth potential in the ETF industry is sector ETFs: over 200 passive sector ETFs manage over 99% of assets, while fewer than 30 actively managed sector ETFs exist.
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