Money Managers Taking Greater Interest in Active ETFs

April 5th at 12:20pm by Tom Lydon

The small actively managed exchange traded fund space is seeing renewed activity as heavyweight mutual fund providers and more passive fund sponsors take an interest in actively managed ETF strategies.

With big names like Fidelity and T. Rowe Price going to the Securities and Exchange Commission to get active exemptive relief, we may finally witness greater growth in the active ETF space, writes Rosalyn Retkwa for Institutional Investor. [Active vs. Passive Debate Spills Into ETFs]

“The index licensing grab has largely played out,” Luke Montgomery, an analyst at Sanford C. Bernstein & Co., said in the article. “Many ETF providers view active ETFs as an important new frontier for industry growth.”

There are over 1,445 U.S.-listed ETFs and only 58, or 4%, are active ETFs. Collectively, U.S.-listed active ETFs hold less than 1% of the industry’s assets, or $12.6 billion out of $1.46 trillion.

Last April, State Street Global Advisors launched its first three active ETFs, and the fund sponsor filed for six more on December 27, 2012.

“We see a strong future for active ETFs,” Jim Ross, senior managing director at State Street and head of asset managers’ ETFs, said in the article.

AdvisorsShares has 18 active ETFs in its suite, with its first acitvely managed ETF, the AdvisorShares WCM/BNY Mellon Focused Growth ADR ETF (NYSEArca: AADR), approaching its three-year mark.

“We believe (but can’t be certain) this could be the first 5-star actively managed ETF,” Noah Hamman, AdvisorShares’ CEO, said in the article.

Recently, the SEC lifted its moratorium on derivatives in active ETFs. New applicants can now use futures, options and swaps as management tools for actively managed ETFs. [Several Fund Firms Eyeing Active ETFs]

The land grab, though, has stalled on the transparency issue as many would-be sponsors have balked at the daily disclosure rules that could promote front running. Nevertheless, there are proposals with the SEC to address the transparency issue. For instance, Eaton Vance has proposed the creation of nontransparent exchange traded managed funds to circumvent the issue. [Newfangled ETFs from Eaton Vance Would Deter Frontrunning]

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.

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