The first exchange traded fund (ETF) to be truly actively managed is finally hitting the scene today.
The new fund is from Grail Advisors and will consist of names that the managers of the ETF have chosen based on research, reports Shefali Anand for The Wall Street Journal.
The Grail American Beacon Large Cap Value (GVT) will be managed by three veteran mutual fund and institutional subadvisors, reports Matt Hougan at Index Universe. The ETF’s goal is to outperform the Russell 1000 Index, but it won’t track any specific benchmark when selecting its names.
While there are other ETFs that are billed as actively managed, it has meant that the stocks within those funds aren’t bought just because they mirror an index. In those ETFs, run by InvescoPowerShares, stocks are chosen through a quantitative process and have limits on how often they trade. The new Grail funds have no restrictions on management activity.
William Thomas, CEO of Grail Advisors LLC, says that the new Grail ETF marks the “next step of the ETF revolution.”
The new fund will charge 0.79%, compared with the average 1.4% fee for a stock mutual fund.
Actively managed ETFs are still finding their way – investors need to see a track record. The market has rallied as of late, but will it be enough for them to regain their confidence and put their trust in an active manager? Thomas feels that more money managers will be willing to take the chance in order to boost their dwindling assets.
One concern on the part of active ETF providers is that of “front running” – trading ahead of fund managers. Grail isn’t as concerned with the issue because there are three firms dividing up the Grail ETF portfolio, making the activity difficult for front runners to keep tabs.
Anand notes one caveat: the ETF’s managers can buy or sell stocks for their other clients in separate accounts and mutual funds, before they trade for the ETF. This means that the clients could potentially get a better price for a stock they buy than the ETF would.
Other companies are in registration to launch active ETFs, as well, including Pacific Investment Management Co. (PIMCO). Meanwhile, Grail has more active funds in registration.