Active ETFs have an empty leaderboard; distribution will fill it

After years on the indexing side of the industry, Brandon Clark found in active ETFs something he had not seen before: a category in which almost nobody held a position worth defending. He joined Federated Hermes nearly six years ago, drawn by that open field, and now serves as its director of ETF business. The leaderboard is empty, he says, because it is young: "We all started from scratch around 2020, with the passage of the ETF rule," he told InvestmentNews.

Mutual funds carry a century of track record to their leaderboard; the ETF versions of the same strategies have a few years. Clark states that gap as a vacancy rather than a weakness: "There's no predetermined position on where anybody lives in that leaderboard," he said.

The vacancy draws its value from money that has not moved yet. Investment Company Institute data cited by InvestmentNews puts roughly $12 trillion in actively managed mutual funds as of June 30, a book Clark treats as territory the ETF wrapper can still win and a sum that turns a product story into a distribution story.

The request coming from advisors has narrowed to income and, more specifically, to the front of the curve, where rate uncertainty has kept some advisors near the short end and Clark describes a trade-off between the yield available and the duration risk required to earn it. "Clients are trying to manage duration, not knowing the path of travel for rates," he said. "Can I lock in those yields without going all the way out and introducing that volatility again?"

His answer rests on a claim about the curve: extending further out no longer necessarily buys an advisor substantially more income, and much of the available yield can be captured at the short end while limiting sensitivity to rates. Two Federated Hermes funds carry that view: the Ultrashort Bond ETF, FUSD, targets duration of one year or less, a step beyond money market funds that keeps the holder near the front of the curve, while the Short Duration High Yield ETF, FHYS, seeks competitive yield with less duration than the broad high-yield market.

The InvestmentNews account carries no assets, no expense ratios and no performance for either fund, and the omission matters more in this slot than it would in an equity strategy. An ultrashort bond fund competes for the same allocation as the money market sleeve it is designed to improve on, so the choice between the two is as much a price comparison as a yield one. Short-duration fixed income is a price fight wearing a duration label.

If the pitch really is duration and yield, the diligence list is short: what the fund yields, what it charges, and where on the curve it lives. The wrapper argument is being made in fixed income because that list is arithmetic an investment committee can settle in a meeting, without taking a view on a manager's stock-picking.

Covered calls are the other half, Clark says, and they have kept drawing interest since 2022 as advisors look for cash flow that does not require giving up equity exposure altogether. He frames the choice as a mix question rather than an in-or-out one: "The question becomes, what's my equity risk mix look like?" he said. "I might be able to actually keep some equity risk on the table using some of these covered-call strategies." The portfolio logic is coherent, but the premium is payment for upside handed to somebody else, so a covered-call sleeve flatters a choppy tape and looks expensive in a sharp recovery, when the cap binds and the client can see what was given away. The demand Clark dates to 2022 has yet to be tested by a sustained equity recovery, and that test, not the fee line, is what will decide whether the shelf holds.

The open-field argument has a loose end in distribution: that book sits in funds whose manufacturers already hold the platform placements, model portfolios and wholesaler relationships an ETF version of the same strategy would have to travel through, and a firm starting with no entrenched products almost certainly starts with fewer of those seats. If that reading is right, the vacancy Clark describes gets filled by managers who already run the money, and shelf space settles the contest as much as portfolio construction.

It also tracks an argument this publication has made about private-markets gateways, where the rails rather than the inventory turned out to be the asset worth owning. Apply the same lens to active ETFs and the number that matters over the next two years is less the yield quoted at the short end of the curve than how much of that pool arrives in a wrapper at all, and which firms are holding the shelf when it does.

The near-term case for the short end is cyclical, and it is the part of this shelf most exposed to a rate change: if front-end yields fall, the reason to reach past a money market fund narrows sharply and the fee line becomes the conversation. If equities grind higher instead of chopping, the covered-call interest Clark traces to 2022 will show whether advisors were buying a strategy or a regime. Both answers will be visible in what gathers around FUSD and FHYS.