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Royal London Asset Management and M&G are planning to enter Europe’s active exchange traded fund (ETF) market, as the sector expands rapidly and traditional mutual funds come under fee pressure.
Hans Georgeson, chief executive of RLAM, told the Financial Times that the firm plans to open an office in Dublin within 18 months to support the £184bn group’s international expansion and entry into the active ETF market.
“The active ETF market is moving very fast,” Georgeson said. “We plan to enter in the top 10. We are very ambitious in the active ETF space. We will probably launch with both equity and fixed income.
“ETFs are more accessible internationally. It’s a key plank for passporting internationally.”
Active ETFs allow fund managers to try to beat a market index, such as the FTSE 100, but within a product that is cheaper to run and easier for investors to buy and sell than their older mutual fund equivalents.
By comparison, traditional “passive” ETFs provide the returns of an index — rather than trying to beat it.
According to a recent report by Goldman Sachs’ fund arm, assets under management in Europe’s active ETF industry have grown nearly sevenfold since 2019 to €68.6bn. The report added that the number of funds and providers has “followed a similar trajectory, with launches of active ETFs outpacing passive launches for the first time”.
M&G is preparing to unveil its first active ETFs within weeks, with the first products investing in UK government bonds and US Treasuries.
Neil Godfrey, global head of client group at M&G Investments, said: “[These] ETFs will open up possible new investor audiences and potentially expand our partnerships with our existing investor base.
“Given many clients already use and have familiarity with ETFs, we see a natural evolution towards active solutions, which will provide new opportunities to engage with capital allocators and their advisers across the UK, Europe and Asia.”
Other traditional fund groups have entered the market this year. Last month, Schroders unveiled its first active ETFs in Europe, investing in global equities and high-quality corporate bonds.
Johanna Kyrklund, Schroders group chief investment officer, said the products bring the “flexibility and accessibility” of an ETF wrapper in combination with the group’s fund managers, who bring the potential to generate higher returns.
Jupiter also entered the sector at the start of the year with a global government bond active ETF.
Matthew Beesley, chief executive of Jupiter, said at the time that “the risk is that if you sit there and don’t do anything, ETFs will continue to cannibalise the assets held in traditional funds”.
While traditional mutual funds are priced once a day, based on the value of its investments, ETFs trade on an exchange and are priced throughout the trading day.
