Actively managed exchange traded funds (ETFs) didn’t exactly get off to a roaring start, but the area finally seems to be finding its footing.
The first actively managed ETF came to market from Bear Stearns, but it disintegrated not long after the firm itself did. Steve Johnson for Financial Times reports that since then, 16 active ETFs have been listed in New York and Toronto, primarily by Invesco PowerShares, Grail Advisors and BetaPro Management, according to figures from BlackRock.
Through 2009, the concept has gained $178 million in assets under management – a small sliver in the larger industry. As more big names file to launch their own versions of actively managed funds, though, the asset situation could change.
While most agree that there’s appeal in active management, there are some issues to contend with:
- Actively managed ETFs have to disclose their entire portfolio compositions on a daily basis so that market makers creating new units or canceling existing ones know what they need to buy or sell. Some providers are less concerned with the potential for front-running than others, though. [Trends in active management.]
- A smaller obstacle may be that few investors will be willing to buy into any of the newer actively managed ETFs because there’s no track record. But if these managers prove that they can generate alpha, they just might see the investors come. [Will active ETFs benefit from the flow of mutual funds closing up shop?]
Active ETFs have lots of advantages over mutual funds: intraday liquidity, no minimums and, on average, lower costs. It’s hard not to see the appeal they hold.
For more stories about active management, visit our actively managed category.
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.