Active ETFs Are A Trend In The Australian Market

A major trend is the outperformance in Australia of active ETFs in the year to date. This builds on the already increasing popularity of actively managed ETFs in the Australian market.

Is the outperformance of the US equity market a reason for the strong performance of some actively managed ETFs in 2024?

Here’s a deeper look at this trend.

Investor preference for selectivity

The strong performance of actively managed ETFs suggests a shift in investor sentiment towards a more selective approach to investing, especially in the current market climate.

Active management expertise

Active ETFs offer the benefit of experienced fund managers who can make investment decisions based on market insights and analysis, potentially leading to better returns than passively managed index-tracking ETFs.

Purely and simply, this is stock-picking.

A growing number of options

The Australian ETF market is witnessing a surge in the launch of new active ETFs catering to diverse investment strategies and asset classes. This wider choice allows investors to find options that better align with their investment goals.

Outperformance of the US equity market

U.S. equities have consistently outperformed their international counterparts in most years since the 2008 Financial Crisis. This dominance is reflected in the ballooning market capitalisation of the U.S. market, which has tripled in size compared to Europe and Asia combined.

Technology is a key driver of this growth, accounting for a whopping 28% of the S&P 500 index.

Several factors have contributed to the U.S. market’s outperformance.

Strong Tech Sector

The U.S. has been a breeding ground for innovative tech companies, many of which have grown into global giants. These companies have benefited from factors like strong intellectual property protections, a deep pool of venture capital funding, and a large, tech-savvy domestic market.

Monetary Policy

The Federal Reserve’s monetary policy has generally been more accommodative compared to central banks in Europe and Asia. This has helped to boost stock prices by keeping interest rates low and injecting liquidity into the financial system.

Regulatory Environment

The U.S. regulatory environment is often seen as more favourable to businesses than other regions. This can make the U.S. a more attractive destination for companies looking to raise capital and grow their operations.

Whether the out-performance of the tech-heavy U.S. equity market continues or is set for a pause is the question. Certainly, it’s a factor in the performance of global equity funds. Superior stock-picking skills are also a factor.

Remember

Active ETFs typically come with higher fees compared to passive ETFs. Past performance is not necessarily indicative of future results.

Overall, the rise of active ETFs presents an interesting development in the Australian investment landscape. Investors seeking actively managed options may find active ETFs attractive.

 

JustStocks Advisor
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