New hedge fund managers aspire to accumulate assets rivaling established companies like Bridgewater or J.P. Morgan, but many will likely fall short. Consequently, some asset managers are looking into the exchange traded fund wrapper to gain an edge.
Smaller funds often find it harder to bring in large pension funds and institutions that look for large hedge funds with billions in assets under management and long track records, reports Ashley Lau for Reuters.
As a result, more are beginning to look at ETFs as a way to market their investment strategies, targeting financial advisors and retail investors instead. The ETF structures provides accessibility, allowing any investor to trade the security like a common stock, and requires no minimum investments beyond the price for a single share. [JPMorgan Plans to Enter the ETF Arena, Looks to Active Space]
“It’s a matter of access,” said Mebane Faber, chief investment officer at California-based Cambria Investments.
Faber has converted a former hedge fund strategy into the AdvisorShares Cambria Global Tactical ETF (NYSEArca; GTAA), which now holds $40.9 million in assets under management. He also hinted at possibly converting his other two private funds into ETFs.
Managers, though, will have to be comfortable with the lower fees associated with ETFs. According to XTF data, the average U.S.-listed actively managed ETF comes with an expense ratio of 0.84%. In comparison, hedge funds typically come with an annual management fee of 2% and a performance fee for 20% of profits.