The more choices the better, but managed ETFs will have a few challenges. First, since the vast majority of ETFs are tied to indexes, there is an understanding that future performance of an ETF will correlate to the corresponding index. If an ETF ends up underperforming the identified index, we’ll hear about it from many fronts.
It’s also implied that a managed ETF should outperform major market benchmarks. The jury is still out, but this has been difficult for most mutual funds. What’s to lead us to believe a managed ETF can pull it off? (Especially if we have no track record or index to guide us.)
Finally, there’s the issue of transparency. ETFs today offer investors a ongoing look at the underlying securities. Will managed ETFs be willing and able to offer the same? Investment News reports that one firm is making a stab at it.
Investment News, By David Hoffman -September 19, 2005 (NEW YORK) – The actively managed exchange traded fund, the Holy Grail of ETFs, is getting closer to reality.
Late last month, Managed ETFs LLC asked the Securities and Exchange Commission for an exemption that would let it launch a broad range of actively managed and "enhanced" index ETFs.
The Summit, N.J.-based company, which was co-founded by ETF pioneer Gary L. Gastineau in August, hopes to get the funds off the ground by aligning itself with one or more major financial services companies, according to sources close to the company.
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