Actively managed exchange traded funds (ETFs) have created many recent industry headlines since they have entered the market.
Market strategists are calling the latest market fluctuations a perfect environment for the actively managed ETF to show their strengths, allowing investors a chance to intervene if their money begins to shrink, reports David Bogoslaw for BusnessWeek.
The definition of an actively managed ETF has yet to be set in stone, but the Securities and Exchange Commission (SEC) says it is not seeking to track the return of a particular index, rather, selecting securities that are consistent with the ETF’ss objectives and policies.
The biggest challenge in gaining the popular following for active management with ETFs is that the general backlash in the financial industry against quantitative models, due to the losses they incurred for clients. It has lead analysts to believe they may be too complicated for the general investing public.
If actively managed funds stay clear of the weaker areas of the market, they can outperform an index since stock prices do track earnings strength, says Bogoslaw. And remember – they’re cheaper than mutual funds, one of their biggest selling points.
Actively managed ETFs are going to be treated like mutual funds, and most providers seem to understand that investors are largely going to wait for some long-term performance numbers before they dive in.
Some active ETFs, all of which launched this year:
- PowerShares Active AlphaQ Fund (PQY)
- PowerShares Active Alpha Multi-Cap Fund (PQZ)
- PowerShares Active Low Duration Fund (PLK)
- PowerShares Active Mega Cap Fund (PMA)
- WisdomTree Dreyfus Chinese Yuan Fund (CYB)
- WisdomTree Dreyfus Indian Rupee Fund (ICN)
- WisdomTree Dreyfus Brazilian Real Fund (BZF)
- WisdomTree Dreyfus Euro Fund (EU)
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.