The range of active ETFs in Europe is growing rapidly and Robeco is also investing heavily in the development of this asset class. The Rotterdam-based fund house brought in Nick King from Fidelity to roll out its ETF strategy, resulting in the launch of four equity ETFs last autumn. In 2025, the focus will be on bonds.
Robeco came up with three ‘3D equity’ ETFs focused on the US, Europe and global markets (a fourth tracking emerging markets will be launched in April). ‘Active products, but we don’t want to deviate too much from the index,’ King told Investment Officer.
‘Instead of buying all stocks in an index, we make a selection based on quantitative factors such as valuation, cash flow, profitability and price momentum.’ The aim is to achieve an outperformance of one percentage point per year on average.
The fourth ETF is the Dynamic Theme Machine ETF, which aims to address the challenges of other thematic ETFs. ‘By the time a theme is discovered and put into an ETF, significant growth and momentum around that theme has already taken place. Investors are missing out on the potential high returns of the early stage,’ says King. With his team, he therefore tries to discover relevant themes earlier through quantitative solutions and new AI techniques. They also rotate themes within an ETF, rather than picking one theme.
To do this, they use natural language processing to scour the internet for topics that are widely discussed. According to King, this is different from how AI is used in other thematic ETFs, as it then predetermines which topics to search for then. Robeco wants artificial intelligence to determine what to search for.
‘Then we see if there is a theme that can also be invested in. So humans are still needed to interpret the information.’
In total, the four active ETFs now have around 270 million euro under management. The ambition is to grow the ETF business further, but with a full focus on active strategies. ‘We will not offer purely passive products; that market is already saturated.’
Ceo Karin van Baardwijk, in an interview with Investment Officer earlier this year, referred to the inflow into passive solutions and money market funds in terms of the decreased operating margin since 2021, while she had previously set the ambition of increasing profitability.
Asked about that decline as well as the difference in profitability with European fund houses like Amundi and Allianz, Van Baardwijk raised the counter question of whether that was the right comparison. ‘Some European houses cannot be compared to us because they also have passive investments, for example. Besides, in the years you’re talking about, a lot of money went into money market funds. As a kind of car park, because customers wanted to wait and see what would happen. Robeco does not offer money market funds nor passive solutions. So we benefit to a lesser extent from the movement going on around money market funds and passive, for that period.’
King now says Robeco is focusing on the areas where it can differentiate and add value. He expects strong growth in the active ETF market in the coming months. ‘It is still a small part of the overall European ETF market, but that is changing rapidly. Every week we see new active ETFs entering the market.’
King’s view is supported by a recent Fidelity survey of 120 institutional investors in Europe and Asia. The survey indicated that demand for active ETFs will grow faster than any other type of investment vehicle over the next 18 months. The main reasons cited in the survey for choosing active ETFs were lower costs, alpha generation and the access ETFs offer to specialist areas.
Next year, Robeco will launch an active bond ETF, probably in the fourth quarter. The type of bond ETF the fund house has not yet determined. King does say it is looking at investment grade credit and high yield bonds.