Your browser is unsupported

Please visit this URL to review a list of supported browsers.

Q&A with Janus Henderson

NYSE Active ETF Updates

Q&A with Janus Henderson

November 11, 2021

Nick Cherney
Managing Director, Head of Head of Exchange Traded Products,
Janus Henderson Investors

Q&A WITH JANUS HENDERSON

This week we sit down with Nick Cherney at Janus Henderson to discuss the company’s recent active ESG launches and how the active ETF market is evolving.

Janus Henderson’s active ETF suite now includes nine ETFs across both equity and fixed income with more than $4 billion in AUM, including the recent addition of five NYSE Arca-listed sustainability-oriented ETFs (JIB, SCRD, SXUS, JZRO & SSPX). How has the active ETF market evolved and what tailwinds/headwinds do you see on the horizon?

Only a few months ago I predicted that Global Active ETF assets would surpass $1 trillion in 2025. Already, that prediction seems conservative.

When ETFs were first introduced 30 years ago, they were synonymous with passive investing, and many of the early adopters were not just choosing ETFs, but abandoning active management. In fact, the earliest ETF sponsors adopted a distribution strategy targeting advisors and retail investors with a story of passive management vs. active management. Since then, ETFs have become a tool of choice for active managers, whether individual investors or large global institutions that are seeking the most efficient means to implement their active portfolio construction.

So, while some in the asset management industry have clung to the idea that ETF is synonymous with passive, the investing public severed that link a long time ago. Today, meme stocks and cryptocurrencies seem to rule the financial headlines, and these stories fly directly in the face of a narrative that investors don’t believe in active management. No one is building market cap weighted portfolios of GameStop or bitcoin. But underlying these stories is something perhaps more interesting, which is a resurgence of interest in investing and trading, disintermediated, available immediately.

The last 20 years of technological change have led consumers to expect infinite variety, instant availability, and all at extremely low cost. In the world of investing, ETFs provide this sort of choice, and have come to represent for many investors -- particularly younger investors -- not a question of active vs. passive, but of modernity vs. an archaic financial system. The reality is obviously more complex, and we firmly believe each fund structure has its valid purpose, in fact 88% of US households that own ETFs also own traditional mutual funds, but the cultural shift among the investing public seems undeniable. Some might attribute that sentiment entirely to retail investors, and while only 30% of US high-net-worth investors are self-directed, these same forces are affecting financial advisors and institutions as well, and many have come to see ETFs as the future of asset management.

So, my thesis is that ETF popularity will only continue to increase, not only because of the structural benefits of the product in terms of trading, transparency, tax efficiency, and low cost, but also because of the larger cultural zeitgeist to simply view ETFs as the modern improvement on the traditional open-ended fund. When viewed through this lens, the growth of Active ETFs is not so much about the active, but rather that the passive ETF universe is largely complete, and more and more active managers will continue to offer their services in this wrapper.

Why did you decide on the ETF wrapper for your sustainable ETFs? And why actively managed?

While we have offered our flagship ESG strategy, Global Sustainable Equity, for over 30 years now, we have never had a large product platform for ESG products in the US. It was important for us to try and bring the full range of our investment capability in this area to bear so that our US clients could access strategies across many of the major exposures in their portfolios. So, for us the need for a product launch was quite clear, and the decision on which wrapper to deliver was probably equally clear.

While ETFs currently represent only around $175 billion of the global ESG products landscape -- so less than 10% -- investors have been increasingly voting with their dollars, particularly for new fund launches, and expressed a preference generally for the ETF wrapper. Our job is to deliver risk-adjusted returns to our clients, and if we can do that in a wrapper they increasingly prefer, that is where we are going to go. Obviously, many of our clients still actively invest in and, in some cases, prefer traditional mutual funds, and we continue to create product offerings there, including a US mutual fund based on our Global Sustainable Equity strategy. But we see the trend towards ETFs accelerating, and by and large for new product development in the US, it is where our focus has been.

As far as active vs. passive in ESG, we don’t believe fundamentally that a passive product can holistically deliver what ESG investors are looking for, beyond a label. Passive ESG can simply mean negative screening for companies that don’t score well on certain ESG quantitative factors. Any Active ETF should incorporate a similar process as step one, but it is very important to go well beyond that. ESG-related issues can be exceedingly complex, and it takes a lot of hands-on analysis and judgment to sort through those issues.

For example, an ESG fund would typically screen out a company that uses thermal coal in its electricity supply chain. But what if there is a market-leading company that is positively impacting the way a certain industry affects environmental and social issues, and they are located somewhere where the entire energy grid relies on thermal coal? Should that company be excluded or supported? That is a very nuanced and complex question that we believe requires active decision making.

Then, of course, the whole issue of engagement is very significant. Not just engagement with corporate management and boards, but also with, for example, federal mortgage agencies and thinking about how to improve credit provision to minority and low-income communities. These are the types of things that are just left off the table with a passive approach.

What trends do you see in the U.S. that prompt sustainable/ESG ETFs or sustainable investing?

While there are a lot of interesting US-specific things going on within asset management and wealth management in particular, these changes are being driven by broader societal pressures and awareness. ESG investing is nothing new, from institutional accounts divesting from South Africa in the 1980s, to the creation of the United Nations Principles for Responsible Investment in 2006, to which Janus Henderson was an original signatory.

What has really created a sea change over the last few years, however, are two major factors. The first is that awareness of these issues is becoming mainstream. Outside of the realm of investments, many topics of importance to ESG investors have taken a front-line position in our national discourse. This means that from investment committees to individual investors, many are seriously thinking about how to address sustainability, social equity, and many other such issues within their portfolios.

The second, and perhaps more significant shift, has been the increasing realization that ESG does not have to represent a tradeoff between doing good and doing well. That in fact robust, market-beating portfolios can be built while also addressing ESG considerations. As investors look seriously at how their portfolio is built through an ESG lens, and then come to realize that there does not need to be a tradeoff vs. returns, the adoption of ESG strategies should only increase.

What are the key considerations for investors who are contemplating actively managed ESG ETFs?

Like any other investment choice, there can be a wide range of complex issues to consider when selecting an ESG ETF. In our mind, the two key elements in this case are first: Does the ETF actually accomplish the sustainability or other objectives it purports too? And second: Can the strategy deliver the investment results you expect?

In our view, this first point is one that is often completely missed by passive ESG solutions. Really, they are just exclusionary lists for the most part, similar to phase one ESG investing in the 80s, with simple divestment strategies. While divestment can be an important tool, we view this as only the most basic and elemental step in the process. From there, it is critical to have a strategy that understands and addresses the many, many nuanced issues surrounding ESG investing. For example, should a steel company be excluded, or should we be proactively investing in industry leaders in green steel that are making a more environmentally responsible future possible?

Should the portfolio managers of ESG funds simply follow basic third-party instructions on which companies to own? Or should they proactively engage with management teams at the companies they invest in, and seek to drive further change? There are countless examples and nuances that require a lot of intention from portfolio managers, and we think this is probably the first thing ESG investors need to determine for themselves: Can passive really deliver on ESG expectations?

Then the second piece is: Can the fund find the nexus of good companies, and good investment results? There are countless non-profits all over the world doing incredible work on issues of importance to ESG investors. But, just like those non-profits, many public companies that are doing good do not present a compelling investment opportunity in the short to medium term, and it is important that funds are seeking that intersection of good companies and good investment results.

By introducing five actively managed ETFs, you nearly doubled the JHI ETF lineup. What drove your decision-making in bringing a complete suite of ETFs to market?

This goes back to some of the prior discussion here, which is that we see a substantial shift over the coming years of investors really seriously looking at how they incorporate ESG into their portfolios. And when they do that, one of the issues they will face is ensuring they have a complete tool set, across asset classes, that can really deliver on the key issues they face.

While five ETFs is far from covering the total universe, we wanted to fill as many of the big buckets as possible. So the suite provides both US and international equity, core fixed income and corporate credit, and then one thematic product that addresses one of the most significant trends in not just ESG investing, but we believe, in future state capital markets generally, and that is the global transition to net zero. We want our clients to know we are serious about this space and that we are ready to deliver them solutions across their entire portfolio construction process. If the future evolves as we think it will, five ETFs will seem like a small initial offering.

Sources:

Brown Brothers Harriman, as of March 8, 2021

Investment Company Institute, as of March 2021

The GlobeNewswire, as of Oct, 19 2020

PwC, as of March 2020

All investments contain risk and may lose value. This material contains the current opinions of the manager and such opinions are subject to change without notice. Janus Henderson is not affiliated with NYSE.

Active ETF Stat Pack

Firms
# of Issuers142
# of New Issuers 202149
ProductsAssets
# of ETFs692AUM ($B)$295.56
# of New Launches 20212353 Yr AUM CAGR165%
Avg. ER0.50%5 Yr AUM CAGR62%
Cash FlowTrading
YTD Cash Flow ($B)$79.60YTD ADV (Shares)71,553,766
3 Yr Cash Flow$170.10YTD ADV ($)$3.87 B
5 Yr Cash Flow$210.10YTD Avg. Spread (bps)*28.73

Source: Factset & NYSE Internal Database and Consolidated Tape Statistics as of 11/5/2021

*Simple average

Active, Semi-Transparent Update

TickernceptionNameAUMYTD Cash Flow30-Day Med. Spread (bps)ADV (shares)StructureLMMExpense Ratio
EQOP
09/17/2020
Natixis U.S. Equity Opportunities ETF
$10,769,207
$(4,230,752)
16.61
1,425
NYSE AMS
Citadel
0.90%
VNSE
09/17/2020
Natixis Vaughan Nelson Select ETF
$5,275,642
$(2,874,368)
15.765
1,296
NYSE AMS
Citadel
0.80%
VNMC
09/17/2020
Natixis Vaughan Nelson Mid Cap ETF
$9,396,768
$(144,031)
16.75
2,182
NYSE AMS
Citadel
0.85%
ESGA
07/15/2020
American Century Sustainable Equity ETF
$159,585,900
$15,799,426
14.775
8,965
NYSE AMS
Citadel
0.39%
MID
07/15/2020
American Century Mid Cap Growth Impact ETF
$24,315,759
$13,157,527
15.01
2,439
NYSE AMS
Citadel
0.45%
ESGY
07/01/2021
American Century Sustainable Growth ETF
$6,472,200
$431,686
7.895
1,653
NYSE AMS
Citadel
0.39%
NDVG
08/05/2021
Nuveen Dividend Growth ETF
$6,048,034
$757,394
7.8
3,956
NYSE AMS
Citadel
0.64%
NSCS
08/05/2021
Nuveen Small Cap Select ETF
$6,556,776
$1,298,008
10.775
4,189
NYSE AMS
Citadel
0.85%
NWLG
08/05/2021
Nuveen Winslow Large-Cap Growth ESG ETF
$6,202,686
$775,536
7.845
3,621
NYSE AMS
Citadel
0.64%
NUGO
09/28/2021
Nuveen Growth Opportunities ETF
$2,138,396,664
$2,241,864,262
7.81
3,017,775
NYSE AMS
Citadel
0.55%
FDG
04/02/2020
American Century Focused Dynamic Growth ETF
$226,071,078
$(32,476,957)
14.495
26,272
ActiveShares
Citadel
0.45%
FLV
04/02/2020
American Century Focused Large Cap Value ETF
$229,427,220
$33,456,466
13.945
11,266
ActiveShares
Citadel
0.42%
CFCV
05/28/2020
ClearBridge Focus Value ETF
$4,181,136
$352,508
26.545
479
ActiveShares
GTS
0.50%
FBCG
06/04/2020
Fidelity Blue Chip Growth ETF
$510,339,630
$232,158,033
17.92
159,553
Fidelity Proxy
GTS
0.59%
FBCV
06/04/2020
Fidelity Blue Chip Value ETF
$101,746,365
$45,044,195
19.05
41,048
Fidelity Proxy
GTS
0.59%
FMIL
06/04/2020
Fidelity New Millennium ETF
$63,109,830
$32,757,233
19.865
25,670
Fidelity Proxy
GTS
0.59%
FGRO
02/04/2021
Fidelity Growth Opportunities ETF
$52,940,330
$46,516,543
4.825
39,708
Fidelity Proxy
Citadel
0.59%
FMAG
02/04/2021
Fidelity Magellan ETF
$48,215,283
$38,980,163
12.15
30,136
Fidelity Proxy
RBC
0.59%
FPRO
02/04/2021
Fidelity Real Estate Investment ETF
$20,300,560
$15,881,860
4.31
12,205
Fidelity Proxy
Citadel
0.59%
FSMO
02/04/2021
Fidelity Small/Mid-Cap Opportunities ETF
$29,754,360
$24,269,200
14.965
17,587
Fidelity Proxy
RBC
0.59%
FSST
06/17/2021
Fidelity Sustainability U.S. Equity ETF
$4,515,620
$2,650,363
11.065
6,096
Fidelity Proxy
RBC
0.59%
FDWM
06/17/2021
Fidelity Women's Leadership ETF
$2,702,225
$514,388
12.07
1,662
Fidelity Proxy
RBC
0.59%
TCHP
08/05/2020
T. Rowe Price Blue Chip Growth ETF
$250,627,925
$154,426,397
9.44
49,291
T Rowe Proxy
Virtu
0.57%
TDVG
08/05/2020
T. Rowe Price Dividend Growth ETF
$110,964,750
$61,421,763
8.025
15,867
T Rowe Proxy
RBC
0.50%
TEQI
08/05/2020
T. Rowe Price Equity Income ETF
$52,573,029
$22,520,816
10.94
8,475
T Rowe Proxy
Virtu
0.54%
TGRW
08/05/2020
T. Rowe Price Growth Stock ETF
$49,578,251
$15,936,419
8.705
6,352
T Rowe Proxy
RBC
0.52%
TSPA
06/08/2021
T. Rowe Price U.S. Equity Research ETF
$21,541,303
$4,585,611
9.115
2,557
T Rowe Proxy
RBC
0.52%
IVDG
12/22/2020
Invesco Focused Discovery Growth ETF
$863,774
$(570,660)
15.195
1,428
Invesco Model
Citadel
0.59%
IVSG
12/22/2020
Invesco Select Growth ETF
$1,459,915
$-
14.55
873
Invesco Model
Citadel
0.48%
IVLC
12/22/2020
Invesco US Large Cap Core ESG ETF
$7,050,015
$5,032,200
13.855
3,439
Fidelity Proxy
Citadel
0.48%
IVRA
12/22/2020
Invesco Real Assets ESG ETF
$1,953,655
$433,080
52.47
2,127
Fidelity Proxy
Citadel
0.59%
LOPP
02/01/2021
Gabelli Love Our Planet & People ETF
$11,145,000
$6,682,480
25.15
1,909
ActiveShares
GTS
0.90%
GGRW
02/16/2021
Gabelli Growth Innovators ETF
$4,302,450
$1,158,250
31.555
541
ActiveShares
GTS
0.90%
FRTY
03/01/2021
Alger Mid Cap 40 ETF
$45,639,500
$32,879,875
36.17
19,378
ActiveShares
Virtu
0.60%
ATFV
05/04/2021
Alger 35 ETF
$15,967,000
$13,627,625
38.235
6,888
ActiveShares
Virtu
0.55%
REIT
02/26/2021
ALPS Active REIT ETF
$24,335,210
$21,008,650
10.81
7,716
Blue Tractor
GTS
0.68%
STNC
03/16/2021
Stance Equity ESG Large Cap Core ETF
$37,796,490
$6,098,946
25.86
2,640
Blue Tractor
GTS
0.85%
PFUT
05/26/2021
Putnam Sustainable Future ETF
$9,299,268
$1,388,114
31.765
2,986
Fidelity Proxy
Virtu
0.64%
PLDR
05/26/2021
Putnam Sustainable Leaders ETF
$7,801,228
$679,200
9.915
2,580
Fidelity Proxy
RBC
0.59%
PGRO
05/26/2021
Putnam Focused Large Cap Growth ETF
$10,347,969
$700,098
9.22
5,446
Fidelity Proxy
RBC
0.55%
PVAL
05/26/2021
Putnam Focused Large Cap Value ETF
$11,150,793
$2,636,116
28.96
4,298
Fidelity Proxy
Virtu
0.55%
Total/Average
$4,340,720,798
$3,057,583,659
16.64
3,563,971
0.60%

Source: Factset & NYSE Internal Database and Consolidated Tape Statistics as of 11/5/2021

*Simple average

November Active ETF Launches

Ticker Name IssuerLaunch DateAsset ClassAUM
JPIE
JPMorgan Income ETF
JPMorgan Chase
11/02/2021
Fixed Income
$106,989,900
HEQT
Simplify Hedged Equity ETF
Simplify Asset Management Inc.
11/02/2021
Equity
$2,524,625
GLDX
USCF Gold Strategy Plus Income Fund ETF
USCF
11/03/2021
Commodities
$2,506,400
MFUL
Collaborative Investment - Mindful Conservative ETF
Retireful LLC
11/03/2021
Asset Allocation
$626,708
MOHR
Collaborative Investment Series Trust - Mohr Growth ETF
Retireful LLC
11/03/2021
Equity
$634,718
RULE
Collaborative Investment Series Trust - Adaptive Core ETF
Retireful LLC
11/03/2021
Asset Allocation
$638,973
Total - 6 New ETFs
$113,921,323

Source: Factset as of 11/5/2021

NYSE ETF Summit & Active ETF Issuer Insights

Missed the April NYSE ETF Summit or our Active ETF Webinar series? Access replays from the Summit here or visit HomeofETFs.com to catch up.

Hear from ETF experts representing the various active ETF structures, fund sponsors such as American Century, Fidelity, PIMCO and T. Rowe Price, liquidity providers such as Flow Traders and Jane Street, and service providers such as BNY Mellon and State Street.

Let us support your ongoing business plans

Missed a previous issue?

Visit The Home of Active ETFs to catch up

Get NYSE's Active ETF Updates

Subscribe