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The Active ETF Surge: Insights from Broadridge Financial Solutions

The active exchange-traded fund (ETF) market is experiencing a remarkable surge, with total assets soaring over 600% to approximately $631 billion as of 2024. According to a recently published whitepaper by Broadridge Financial Solutions, a leading global fintech provider, this boom presents both opportunities and challenges for asset managers. The report, titled "Active ETFs Achieving Escape Velocity," analyzes the current landscape and delineates the essential strategies for flourishing in this competitive environment.

In the past five years, the number of active ETFs has increased significantly, with a record 660 funds launched in 2024 alone. Despite this exuberance, the report highlights a noteworthy concentration problem—nearly 77% of all active ETF assets are managed by just ten firms. This concentration underscores the need for effective distribution and strategic positioning for new entrants to thrive in this burgeoning market.

The Competitive Landscape

Davis Walmsley, the Head of US Solutions at Broadridge Data and Analytics, stresses that while the prospective growth of active ETFs is optimistic, success comes with rigorous demands. "Only 11% of active ETFs introduced over the past three years managed to gather more than $100 million in their first year—a crucial marker for long-term viability," he notes. With active ETFs currently accounting for just 6% of total active assets under management (AUM), the market holds substantial potential for growth, attracting both retail and institutional investors.

This rapid rise comes amidst changing investor preferences, with many individuals gravitating towards actively managed products that promise enhanced performance or specific investment strategies. Broadridge’s insights emphasize that to capitalize on this shift, asset managers must not only launch funds but also cultivate comprehensive support for financial advisors to ensure these products align with the evolving demands of investors.

Strategic Imperatives for Success

To navigate this competitive terrain, Broadridge identifies three pivotal strategies for asset managers looking to optimize their active ETF offerings:

1. Go with the Flow

Establishing a robust distribution network is crucial, particularly within Registered Investment Advisor (RIA) channels, which represent a significant portion of active ETF assets. Effective outreach aligned with the specific dynamics of these platforms will be essential, especially as entry barriers tend to be higher within broker-dealer and wirehouse ecosystems.

2. Pick a Lane

Successful managers often specialize in distinctive investment strategies—be it in innovation-driven funds or income-generating ETFs. Focusing on strengths rather than attempting to cover multiple bases can lead to a more solid market presence. By adopting a unique approach, asset managers can carve out their niche and appeal to target demographics more effectively.

3. Less is More

Prioritizing qualitative outreach over quantitative engagement can greatly enhance conversion rates and initial sales. By honing in on high-potential advisors already utilizing active ETFs, managers can streamline resources and bolster early progress.