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.
The advent of active ETFs is ultimately a great thing for both investors and the ETF industry – it gives investors a greater number of choices, adds new innovation to the industry and the funds come with all the advantages of a regular ETF. Not all products are right for everyone, but these represent another tool investors can use if they choose to.
The financial crisis may have kept investors on the sidelines, but it’s going to be interesting to watch where the money goes as the market recovers.
For more information on actively managed ETFs, visit our actively managed ETF category.
Max Chen contributed to this article.