The ETF market is evolving rapidly, and according to J.P. Morgan, we’re on the brink of a major shift. What was once a space dominated by passive strategies is now seeing a rise in active management, with ETFs offering new ways to gain exposure to various sectors.
Alongside this, niche products like option-based ETFs are growing in popularity, interest in some areas, like ESG has started to fade - particuarly in the US. As these trends continue to unfold, investors should keep an eye on the key movements shaping the future of the ETF space.
1. Active ETFs Are Gaining Ground
Actively managed ETFs are rapidly gaining traction and are expected to take significant market share from mutual funds. These funds offer lower fees, tax efficiency, and liquidity, and their increasing popularity reflects a broader shift away from traditional mutual funds.
2. Fee Pressures Are Slowing
With the rise of active ETFs, the relentless decline in average ETF fees is likely to slow or stop. Investors have always been fee-conscious, and while passive ETFs will remain the cheapest option, the growing popularity of active strategies could see fees elevated in this segment.
3. Option-Based ETFs: A New Volatility Tool
Option-based ETFs have seen strong growth and are now a major source of market volatility supply. For much of 2024, these funds have actually helped suppress volatility, but as their popularity continues to rise, they could start playing a larger role in market dynamics.
4. Thematic and ESG ETFs: Interest Is Fading
A few years ago, thematic and ESG ETFs were among the most popular products on the market. However, demand has cooled significantly. While the generative AI craze brought some fresh interest, it hasn’t translated into massive inflows. Overall, these types of funds are struggling to maintain their appeal, as investors shift their focus to other sectors.
Bottom Line
The ETF market is evolving quickly, with option-based funds, and shifting demand for thematic ETFs all playing a part. While broader market conditions and cooling interest in some areas will shape the market in unpredictable ways. For now, the rise of active ETFs seems like the trend to watch out for.
Disclaimer
Not financial or tax advice. No content produced by Pluto is financial, accounting, legal or tax advice. Our content is strictly educational and is not investment advice or a solicitation to buy or sell any assets or to make any financial decisions. This article is not tax advice. Talk to your accountant. Do your own research. The performance of most cryptoassets can be highly volatile, with their value dropping as quickly as it can rise. You should be prepared to lose all the money you invest in cryptoassets.
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