A reasonably new investment vehicle has begun planting its roots this side of the Atlantic: the active ETF.

There are about a hundred of these products now available to UK investors, most of them domiciled in Ireland, according to Morningstar. 

That’s not an insignificant figure and, with demand only increasing, we thought we would test the waters to see if this reasonably nascent creation might make some headway among the wealth management industry. 

It is worth noting that the word ‘active’ is used rather loosely here, as Morningstar's list includes factor-tilted funds and ‘research-enhanced’ strategies that blend both active and passive approaches. 

The notable exception to this is Cathy Wood’s suite of Ark ETFs which were rolled out to European investors earlier this year. 

Since then, however, we can report that the three funds have, altogether, amassed less than £15mn of assets in the five months since launch, perhaps indicating that Wood overestimated how thrilled our investor base would be. 

And within this wrapper comes all the usual benefits of being traded on exchange: competitive fees, intraday trading, and decent flexibility. 

For wealth managers approaching active ETFs, however, the question is: why? 

James Godrich, fund manager at JM Finn, says that when deciding how to invest in a particular market, he either sees the opportunity as ripe for active manager outperformance or efficient enough to go entirely passive. 

Active ETFs, for him, satisfies neither condition.

“If I've made the conclusion that that's an efficient market, why would I want to own an active ETF?” he said. 

“They've only come onto my radar in the last six months or so, but I struggle to see why I want to use them in most cases. 

"I've either come to the conclusion that there is opportunity for active outperformance –so let's go and exploit that – or there isn't, so let's try to gain the beta exposure of the market.”

Indeed Ben Seager-Scott, CIO at Forvis Mazars, posed the same question back to us: ‘what’s the point?’ 

“Active ETFs have been most prevalent over in the US and have really started branching out from there, but they have specific tax efficiencies as a key driver that simply aren’t relevant on this side of the Atlantic,” he said. 

“From an asset management point of view you also need to consider some of the challenges around transparency.”

Intraday trading requirements ensure that ETFs publish their holdings each day, and for the active manager this transparency involves publicising the strategy’s secret sauce, says Mark Northway, investment manager at Sparrows. 

He said this requirement may prove problematic for managers seeking to hide behind a veil of secrecy, but added that active ETFs have a clear role to play in allowing investors to access market segments which do not naturally lend themselves to a strict rule-based approach.

“ESG filters and screens tend to push portfolios further into illiquid and esoteric bonds, with obvious risks to the investor,” he said. “There are good arguments for active intervention to ensure that ETFs in this sector avoid liquidity traps.”

Will Northway end up using them in portfolios? The answer is no – but more down to his scepticism for active management than anything else. 

And for Seager-Scott over at Forvis Mazars, he doesn’t see a very compelling case for traditional active management to move into the active ETF space, either. 

So appetite seems cool. Let us know if you see things differently and think you might see a use for active ETFs.