The interest in exchange traded funds (ETFs) is so great that even the most expensive are attracting money this year.
According to Bloomberg Intelligence, funds charging 0.81% or more in fees raised $ 11.2 billion in the first six months of 2021. This is the upper bound – the average active stock picking ETF costs about 0.7% of assets per year and a regular passive costs 0.5%. For fixed-income funds, the commission is lower.
To illustrate this, below are the statistics on inflows to funds with high commissions.
This is the biggest six-month gain on record, as well as the largest change after losing $ 2.3 billion in the last six months of 2020. This amount is compared to the $ 475 billion raised by all ETFs this year. In fact, this year is likely to see record inflows in general given the vigorous appetite for ETF products. While the economy is recovering from the pandemic, investors are rushing to participate in the economic rehabilitation.
Investors are showing interest in all types of ETFs, including high-risk funds or funds with more active strategies. Leveraged funds such as ProShares’ Ultra VIX Short-Term Futures ETF (ticker UVXY), Direxion’s Daily Semiconductors Bull 3x Shares ETF (SOXL) and ProShares’ UltraPro Short QQQ (SQQQ) have raised over $ 900 million each this year.
Investors are also looking to capitalize on the raw materials boom. Invesco DB Commodity Index Tracking Fund (DBC) and First Trust Global Tactical Commodity Strategy Fund (FTGC) raised $ 690 million and $ 1.3 billion, respectively.
Cathie Wood’s range of actively managed products is also quite pricey. Its flagship ARK Innovation ETF (ARKK) charges 0.75% of assets per year. However, it raised nearly $ 7 billion in 2021, the ninth highest in the industry.
“It also reflects a move towards actively managed ETFs. When you look at how actively investors are investing in ARK funds, whose commissions are significantly higher than conventional funds that track an index or trend, it becomes obvious,” said Ben Johnson, global director of ETF research at Morningstar.
Two-thirds of all ETFs received new cash this year, according to a Bloomberg Intelligence report. This is one of the reasons why new funds are launching at a breakneck pace and why fund closures are rare.
However, low commissions are still the most vital factor in investor choice. Nearly $ 254 billion – more than half of this year’s total inflows – has gone to products charging 0.1% or less. Likely, the target audience and the number of institutions investing in traditional and active funds are different. Therefore, it is probably premature to say that passive investing is being replaced by active investing.
Based on Bloomberg materials