Professional investors are planning to increase allocations to active ETFs over the next 18 months, with new research from Fidelity International suggesting they are becoming an increasingly important tool for portfolio construction across equity and fixed income markets.
Active ETFs are set to play a larger role in portfolios over the coming years, according to research from Fidelity International, as professional investors look to combine the flexibility of the ETF structure with the benefits of active management.
The study, conducted among 310 professional asset allocators across the UK and Europe, found average active ETF allocations are expected to rise from 10.2% of portfolios today to 14.6% over the next 18 months.
The findings reflect the continued expansion of the active ETF market and growing acceptance of the vehicle as more than simply a passive investment wrapper.
Today, a quarter of professional investors allocate at least a quarter of their equity exposure to active ETFs. That figure is expected to rise to 37% within the next year.
In fixed income, the proportion allocating at least a quarter of assets to active ETFs is expected to increase from 18% to 25%.
US equities were identified as the area offering the strongest opportunity for active ETFs, followed by emerging markets, small-cap stocks and developed European equities.
Neil Davies, head of ETFs at Fidelity International, said: “The rise of active ETFs is one of the most significant global trends in the investment industry. What started as niche concept has now become a rapidly expanding segment.”
The research also suggests investors are becoming more selective in how they use active ETFs. Fidelity International identified three broad approaches:
- Benchmark-aware strategies.
- High-conviction strategies.
- Discretionary strategies.
While benchmark-aware strategies remain the most widely used, the research found the strongest demand for future product development lies in high-conviction active ETFs.
Half of professional investors surveyed said they would like to see more products in this area.
Stefan Kuhn, head of ETF distribution, EMEA, at Fidelity International, said: “Active ETFs may share a label, but are not all created equal.”
He added: “High-conviction active ETFs could represent the next frontier for the market, with our research pointing to particularly strong demand for further product development in this category.”
The study also found that while cost efficiency, liquidity and transparency remain important considerations, investment outcomes remain a key driver of allocations.
Nearly three-quarters of respondents cited the potential for outperformance, while a similar proportion highlighted diversification and the ability to manage concentration risk.
The findings offer insight into how professional investors are incorporating active ETFs into portfolio construction, particularly as the market evolves beyond traditional passive strategies and investors seek a broader range of portfolio-building tools.
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