Capital Group, Dimensional Top Active ETF Inflows Amid Volatility

When the market goes down, the value in active management goes up — or so fund managers like to say.

That was certainly true from a demand standpoint amid the volatility in the first two weeks of April, when investors funneled $2.4 billion into US large cap active ETFs. The big winner was a name that’s all but synonymous with active management, Capital Group, whose Dividend Value ETF raked in about $648 million, according to Morningstar. The haul was about two and a half times that of the next-closest fund, also a Capital Group product, the Group Growth ETF, which saw more than $235 million in net sales.

“Fund companies are not shy about selling clients on the benefits of active management in volatile periods,” Morningstar principal for equity strategies Jack Shannon wrote. 

“They say that their managers are best able to find the babies the market often throws out with the bathwater.”

Pick and Choose

Capital Group touts the sales as a barometer for demand across its line of 22 active ETFs, which the company claims as “the fastest organic growing” lineup in the market. “We saw investors turn to our ETFs to help navigate the recent market selloff, with three of our ETFs breaking the top 10 in flows for active domestic large cap equity ETFs,” a company spokesperson said.

Another firm, Dimensional Fund Advisors, had six US large-cap active ETFs in the top 20 sellers. That firm brought in 20% of all net sales in the category, or about half of what Capital Group saw, according to Morningstar. Still, there was a broader trend showing what investors wanted — passive US large-cap ETFs attracted $20.2 billion during the same time period.

With so many fully transparent active ETFs on the market, it’s also worth seeing what managers were dumping and buying, Shannon noted. The daily disclosures of such funds showed that active US large-cap ETF managers:

• Dropped holdings in Hewlett Packard by 63% (stock price down 27% year to date)
• Decreased Service Corp International exposure by 58% (stock mostly flat year to date)
• Reduced Bank of America holdings by 52% (stock down 16% year to date)
• Increased Capital One exposure by 208% (stock down 9% year to date)

But … and It’s a Big But: Don’t read into the portfolio changes too much, Shannon noted. “Most positions’ changes were roughly in proportion to their ETFs’ flows, with some managers being a bit more tactical and opportunistic. This is perhaps the best lesson for investors: While market turbulence can present a unique opportunity or two, wholesale portfolio changes are likely unnecessary,” he wrote.