ETF Industry’s Thoughts on Bogle, Active Management and More

Exchange traded funds (ETFs) are a relatively new addition to the variety of investment tools available and leaders of the ETF industry are fervent about the usefulness of this investment tool.

Where ETFs Are Now

During the first four months of the year, net sales for mutual funds dropped $5 billion while ETFs experienced net inflows of $7.6 billion, says Joseph Keenan, Managing Director and Head of Relationship Management for BNY Mellon Asset Servicing, in webinar titled Pressures and Potentials in the ETF Market. Several leaders in the ETF industry gathered at the webinar to talk about the latest trends they’ve seen.

Asset Allocation Out, Active Management In?

Bill Thomas, chief executive officer at Grail Advisors, sees investors have been hit hard as asset allocation/diversification failed across the board, and now people are coming back to the markets with different strategies and styles. The market turnaround could be the opportunity for ETFs to shine. He also thinks that value will be leading the recovery, with small-cap firms doing well, then work its way up to large-caps.

Thomas notes that investors may see the benefits of an actively managed strategy in ETFs rather than focus on track records. He also feels that having proven money managers running the funds will be to their benefit.

Bruce Bond, president of PowerShares, says the savings rate, which is up as retail investors become cautious, could hinder the economy. Investors need to take advantage of different opportunities and they can’t rely on the set-it-and-forget-it strategy. ETFs could come out strong because of the lure of transparency, low costs, liquidity and new tax implications. Not to mention hedge fund strategies or tactical long/short strategies and commodity-focused ETFs that are now available to retail investors.

Leveraged ETFs

Dan O’Neill, President/Chief Investment Officer at Direxion Funds, says the success of Direxion is because its leveraged funds allow investors access to an “athletic set of tools.” But a potential trader should monitor these type of funds very frequently and be educated about the ramifications of using these types of leveraged funds. O’Neill stresses that they are not meant for everyone.

Thoughts on John Bogle

The webinar addressed the words of dissent about ETFs, particularly from John Bogle, who recently did a study showing that investors generally make poor decisions when buying and selling them. O’Neill notes that Bogle’s study didn’t account for investors who were shorting or hedging, and that he knows many people are actually using ETFs very constructively.

Max Chen contributed to this article.