Sometimes, one country just isn’t enough.

Issuers big and small are tapping into a rapidly growing international market, which climbed to $20 trillion last year. Janus Henderson revealed plans earlier this month to expand its ETF business beyond the US, while the boutique firm Fundstrat is planning to bring its popular “Granny Shots” fund to Europe. Products from across the pond grew faster than American ones for the first time last year. “When you get a successful product in the US, people start knocking on the door in Sweden or Mexico or wherever,” said Hector McNeil, cofounder of London-based white labeler HANetf.

Do U-C-IT Now?

Companies looking to sell to investors all over the world can use both ’40-Act products that meet US requirements and offerings regulated by the Undertakings for Collective Investment in Transferable Securities, or UCITS, McNeil added. The latter set of products adheres to a stricter set of European Union rules and can be registered and sold in EU countries. “If you’ve got a really good idea, you want to say, ‘OK, we want to get this product out in UCITS form for the rest of the world,’” McNeil said. “Everyone’s getting very excited because of that retail rise.”

Part of the hype comes from the ongoing shift away from mutual funds toward ETFs. There are more than 4,500 UCITS mutual fund issuers, according to McNeil, but only a few hundred UCITS ETF providers. “Even if 10% of those enter the ETF market, that means we’re going to quadruple the size of the marketplace,” he said. There’s also the tax benefits. “If you’re running equity portfolios, and you’ve got a large proportion of US equities, which usually have a global basket … you’re paying away an extra 15 basis points for being in a mutual fund versus an ETF,” McNeil said.

Some of the largest such products currently on the market include:

• The iShares Core S&P 500 UCITS ETF, which has $146 billion in assets and is up 8.9% year to date.
• The Vanguard S&P 500 UCITS ETF, which manages $81 billion and is up 8.6%.
• The Invesco S&P 500 UCITS ETF, which has $55 billion and is up 8.5%.

Open Door Policy: Still, the primary reason businesses want to expand is to tap into an entirely new market, McNeil said, particularly when you can offer the same strategy in a slightly different wrapper. “It basically just means that you’re cutting and pasting a lot.”

It all depends on how you look at it.

The S&P Indices Versus Active scorecards have long delivered a bleak message for active management: Most funds simply underperform their benchmarks over time. Roughly 90% of actively managed large-cap funds lagged the S&P 500 over the past 15 years, per the latest data. But a recent study backed by the Investment Adviser Association Active Managers Council wants to change that narrative. It argues SPIVA’s methodology may not reflect what clients actually experience when allocating to active mutual funds and exchange-traded funds. It could flip the script on the active management story, warranting another look from all those passive-loving advisors.

“[SPIVA’s] statistics are calculated correctly, but the way they’re calculated is not very well tailored to actual investment decision-making,” said Tim Riley, study author and University of Arkansas associate professor. “SPIVA gives the impression that passive is dominant and the clear answer for what you should be picking, but a much more balanced portrayal is needed.”

Change Up

The researchers said three adjustments would paint a more accurate picture of active management performance. First, SPIVA treats funds that close before the end of a time horizon as underperformers. Riley argued that approach ignores funds that may have delivered strong returns for years before shutting down. “For investors, if we give you 19 years of great performance and then close, that still creates a lot of value,” he told ETF Upside.

Second, the report weighs all funds equally regardless of size. That means a $5 million fund counts the same as a $10 billion strategy, even though far more clients are exposed to the larger fund. Lastly, the researchers said active funds should be measured against investable passive funds rather than indexes that clients cannot directly buy. “On average, when we make that switch, there’s a lot more value to be active than when you compare against a hypothetical benchmark,” Riley said.

Under those alternative methods, the actively managed funds’ results look a bit different:

• Some 43% of domestic equity assets outperformed over the five years through 2024, nearly three times SPIVA’s figure of 15%.
• Similarly, in that same period, 86% of assets in high yield bond funds outperformed, in contrast to SPIVA’s report that just 46% of funds in the category outperformed.

“When we improve that tailoring, we see much stronger performance from active funds, especially among fixed income where that result completely flips,” Riley said.

Keep it Down. While many advisors still say passive strategies are superior, there is room for active management in portfolios. Regular Advisor Upside contributor Allan Roth said in a Morningstar report that active ETFs are generally better than active mutual funds, but not as good as the lowest-cost and most broad index ETFs. “Avoid expensive, flashy ETFs that can have outstanding performance and then often crash just as investors pour their money in,” he said.