Despite the risks of transparency and disclosing their day-to-day holdings of a privately managed fund, large mutual fund managers are willing to enter the developing segment of actively managed exchange traded funds (ETFs).
JP Morgan, Legg Mason and Dreyfus have sought exemptive relief from the Securities and Exchange Commission, which would allow the mutual fund managers to launch actively managed equity ETFs, reports Jackie Noblett for Ignites. Additionally, iShares has also received permission to launch an actively managed equity ETF and an active ETF of ETFs based on fixed-income. [ETFs Gaining Traction With Active Managers.]
The industry has been wary of the transparency requirements of active equity ETFs since it will force them to disclose their trading practices, which could make funds susceptible to front-running or free-riding schemes. Robert Goldsborough, Morningstar ETF analyst, remarks “the way that any long-only active mutual fund manager sees it, if cannibalization is your fear, you’d rather have some of that money going into your own ETFs, even if they’re at a lower cost than your mutual funds.”
T. Rowe Price, Janus, Eaton Vance, AllianceBernstein and others have focused on the active fixed-income arena as a way to limit the impact of trading schemes that could hurt performance. Eaton Vance CEO Thomas Faust previously stated that transparency “is a major impediment to the development of ETFs in the active equity space, because not many portfolio managers are willing to disclose their portfolio to the world on a real-time basis.” [Janus Gets Active With ETFs.]
Noah Hamman, CEO of AdvisorShares, commented, “I’ve never seen a report or study that says transparency reduces alpha, and we’ve seen nothing in regards to transparency that would have an impact on our performance.” [The First Actively Managed ETF Of Its Kind.]
For more information on active ETFs, visit our actively managed ETFs category.
Max Chen contributed to this article.
The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.