As mutual fund companies enter the exchange traded fund (ETF) game, there may be a boom in actively managed ETFs. What could this development mean to you in the long run?
Mutual fund leader BlackRock will be purchasing Barclays Global Investors, which makes up 49% of the ETF market, for $13.5 billion, writes Lawrence Carrel for Reuters. It is likely that BlackRock wants its fair share of the actively managed ETF market. BlackRock’s CEO has suggested as much.
Why is the ETF industry moving into active management? Because active ETFs can do several things that mutual funds simply can’t: their fees are lower, they can trade all day on an exchange like a stock (as opposed to once a day for mutual funds) and holdings are disclosed daily (as opposed to the quarterly disclosure required of mutual funds).
Index funds have lower fees compared to active funds, and ETFs of both variety charge less than mutual funds and offer greater tax efficiency with the perks of transparency. Traders are also able to buy or sell ETFs during market hours.
In active funds, stocks will be actively traded and the ETFs could incur capital gains, but Grail Advisors CEO Bill Thomas notes that subadivsers usually don’t trade a lot and have a reputation for tax efficiency.