April 21, 2008 at 12:00 pm by Tom Lydon
Was the first actively managed exchange traded fund (ETF) a good idea after all? Chuck Jaffe doesn’t think so.
The Bear Stearns Current Yield (YYY) debuted on March 25, and it’s not going to look any better as the active ETF sector grows, Jaffe says. His problem is not with the fund’s troubled namesake, though. He questions whether the fund is going to live up to anyone’s expectations.
The fund purchases short-term debt to generate its income in the form of government securities, corporate debt, mortgage-backed and asset-backed securities, municipal bonds, foreign debt obligations and so on. The fund comes with an expense ratio of 0.35%, competitive when compared with the average money market fund expense ratio of 0.47%.
But is it going to deliver superior performance? Jaffe and Jeff Ptak at Morningstar think not: making trades in the fund would erode any expense advantage. One researcher says the fund is not much different than holding cash.
The other recent entrants into the actively managed ETF playing field are:
- PowerShares Active Low Duration Fund (PLK)
- PowerShares Active Mega Cap Fund (PMA)
- PowerShares Active AlphaQ Fund (PQY)
- PowerShares Active Alpha Multi-Cap Fund (PQZ)
Only time will tell with these funds as they build up track records. Investors are watching for performance over time, and if they deliver, perhaps the market will go for this new breed of ETF.
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April 21st, 2008 at 2:11 pm
Bellyflop! It’s embarassing to make ETFs so transparent. The daily volume on these have been pitiful and assets under management have remained the same since inception. Granted, it’s only been a week or so since inception.
What do you think the typical mutual fund nets on a daily basis? Do mutual funds typically provide net deposits / withdrawals? Perhaps after these funds deliver a solid performance after a few quarters, future active ETFs will be more actively heavily traded.