The structural shift towards active ETFs will reshape the asset management industry, according to McKinsey, and financial advisers will be a key group for managers to focus their distribution.
In its report, The great convergence, the consulting firm said 2025 will mark a “coming of age” for the funds, which have seen a sharp boom in launches, partly driven by greater education of the products from advisers.
Some 63 per cent of financial advisers who were using active exchange-traded funds (ETF) said they were using them as a way to replace actively managed funds.
Active ETF launches in Australia this year have come from firms, such as Schroders, JP Morgan Asset Management, Macquarie Asset Management, PIMCO, and BlackRock, but their number is far smaller than passive counterparts.
McKinsey said: “On the demand side, the rise of registered investment advisers with strong ETF preferences, ETF-only investment platforms, and increased penetration of model portfolios have expanded the playing field. On the supply side, regulatory shifts allowing dual-share class structures are increasing accessibility, and rapid product innovation filled the shelves with differentiated strategies packaged in ETF wrappers.”
But for those fund managers who want to win in the space, the consulting firm said they will need to make growth in active ETFs a priority for their firms, which will include persuading advisers to use them within model portfolios.
“Leading managers have made growth in active ETF platforms a strategic priority. Their strategies are designed to target both core and unmet client needs, they have invested in ETF-focused sales specialists who can navigate both financial adviser and model portfolio placement, and they have forged deep platform partnerships that enable product co-creation and smooth onboarding,” it said.
It also expected fund managers would need to reassess their relationships with platform providers, as active ETFs are typically priced at a different rate to actively managed funds.
“Active ETFs are typically priced about 15 basis points lower than their corresponding active mutual funds – most of that gap is forgone platform fees – equating to roughly US$20 billion in revenue share. Expect platforms to revisit commercial terms. Managers who show up as strategic partners, not just product providers, will find doors opening,” it said.
