Pendulum Shifts to Active ETFs
May 6th 2012 at 6:00am by Tom Lydon
Actively managed exchange traded funds are finally getting some attention, as successful new products have recently launched. The fixed income category of active management has been able to acquire assets, setting momentum for this area of the market.
“Although we estimate that actively managed ETFs represent roughly 5% of all the assets in U.S.-traded ETFs, we see interest on the rise, as evidenced by the number of such ETFs being offered and launches by various fund managers. We think that both existing fund companies and new entrants will increasingly be looking at actively managed ETFs to both defend market share, and to attract new money,” Tom Graves, S&P Capital IQ Analyst wrote in a recent MarketScope report.
Pimco Global Advantage Inflation-Linked Bond Strategy Fund (NYSEArca: ILB), with $13 million in assets, is Pimco’s 6th active ETF launch and now brings the total of actively managed ETFs to 47. At the end of April, the active management space had about $$5.8 billion in assets with about 90% of this allocated to fixed income or currency focused products. [Actively Managed ETFs: The Next Frontier?]
In contrast, at the end of March, there was about $1.19 trillion invested in the U.S. ETF industry with 71% of these assets allocated to equities. [ETF Focus: Pimco Total Return]
The actively managed ETF space has appealed to the fixed income and currency-focused investors, while actively managed equity ETFs have not appealed to many. There are about 11 equity focused actively managed ETFs currently, with around $110 million in assets under management.
One of the largest obstacles to the growth of the actively managed ETF space is the reluctance of managers to reveal their strategies daily, as ETFs are totally transparent and holdings would be revealed in real time. This transparency could hinder the performance of a manager before his strategy is completely implemented. [Investors Actively Manage Passive ETFs]
Secondly, the limited track record of these funds also keeps some managers from jumping into the sector. Actively managed ETFs are a new concept, so thre is limited data and performance on these types of tools.
Areas of the market where active management within an ETF could be prosperous, according to S&P Capital IQ, includes categories where investors think there are pricing inefficiencies, area where there are a lack of cost effective access to a certain asset and offerings where there is a highly respected fund manager.
Tisha Guerrero 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.