The actively managed exchange traded fund (ETF) didn’t fare as well as anticipated when they originally launched earlier this year. A primary reason for this is that there’s no back-tested data, so a track record will need to be built before investors are able to see that these funds achieve their objectives.
The challenge for providers who enter this space in the future will be to retain the advantages of ETFs while adding value. Active ETFs already have several advantages over mutual funds, including the ability to be traded all day like a stock, daily disclosure of holdings and, on average, a lower expense ratio.
The case for active management of international funds is growing faster than that for domestic equity funds because many international-equity managers seem to have added enough value to overcome the higher expenses compared with passive benchmarks, reports Marvin Appel for Investment News.
International equity funds are more likely than domestic equity funds to put trading restrictions in place because of higher transaction costs when meeting redemptions or when investing cash flows. Appel says that if a bid-ask spread was low, an actively managed international equity ETF could be useful.
The competition within the ETF industry has birthed some useful, low cost and innovative products. The line between active and passive management has been blurred enough, lending more importance for active management to show its strength. In the end, the investor wins.
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.