Investment pros want more active ETF options

Australian investment professionals are showing a strong preference for active exchange-traded funds (ETFs) in multi-asset and thematic strategies, according to a recent survey. The survey found that 51% of respondents preferred active ETFs for multi-asset strategies, while 32% currently use them for these exposures.

The gap between preference and current use is also evident in thematic and specialty strategies, where 47% of respondents prefer active ETFs, but only 39% report current use. Emerging markets are another area where active ETFs are in high demand, with 49% of respondents preferring them.

The survey, conducted by MSCI, found that 93% of respondents want a greater selection of ETFs. This suggests that there is a growing demand for active ETFs, and that investment professionals are looking for more options in this area. MSCI’s survey was based on responses from 75 investment professionals in Australia, including advisers, wealth managers, and portfolio managers.

All respondents had at least three years of investment-management experience and were responsible for decisions involving at least $50 million in assets. Active ETFs are already used by 95% of respondents, with 73% expecting to increase their use over the next two years, indicating a strong growth intent.

Shane Edwards, MSCI’s Sydney-based head of Asia Pacific, stated that active ETFs are broadening the investment strategies available through the structure. Edwards said, “ETFs are firmly established in the Australian investment toolkit, and their role is likely to keep growing.” They noted that active ETFs are an important part of this growth story, bringing a wider range of investment strategies and exposures into the structure.

Edwards suggested that looking closely at where demand is building can bring greater clarity to where the market may develop next. Demand for broader exposures is also coinciding with plans to increase offshore investment, with 67% of respondents expecting to lift international equity allocations over the next two years.

Respondents reported an average equal split between Australian and international equities, while 40% expected to focus more on emerging markets. Growth and return prospects overseas, alongside portfolio diversification, were cited as reasons for investing internationally. Currency management is also a key consideration in offshore investment decisions, with 68% of respondents preferring a hedged or dynamic hedging approach.

However, 45% of respondents vary their approach with market conditions. The anticipated expansion of active ETFs is expected to sit alongside continued demand for other structures, with 61% of respondents expecting to increase passive ETF use and 55% planning greater use of managed funds. Competition for individual allocations remains evident, with 53% of respondents saying that an active ETF allocation would most likely come from an existing managed fund.

Fees remain the most commonly cited selection criterion, with 59% of respondents citing them as a key factor. However, 52% of respondents would pay a premium for exposures that are otherwise difficult to access. Respondents were more cautious about extending ETFs into private or less-liquid assets, with 51% open to doing so but only 17% very open. Liquidity mismatch was the leading concern, cited by 59% of respondents, followed by valuation transparency and strategy complexity.