Actively managed exchange traded funds (ETFs) are coming left and right, though they haven’t penetrated the market like traditional ETFs have. But make no mistake: this segment of the space is growing and interest is increasing.
The concept of an ETF that is actively managed might seem a little odd. After all, the point of an ETF is that it tracks an index, rather than the concept of a manager picking the shares in the basket. But active ETFs have huge merits, and that’s part of the reason many big bangs are looking to get in on the space. [Misconceptions About Active ETFs.]
Thomas M. Anderson for Kiplinger reports that an indicator of the interest in active ETFs is evident in looking at those who want to be a part of the party. These names include John Hancock, Legg Mason and T. Rowe Price; all have registered with regulators to develop such funds. This is holding open the possibility that some of the best and brightest minds in the fund industry may one day be picking stocks and bonds for ETFs.
This far, the regulatory hurdles have kept actively managed ETFs from taking off. According to Active ETFs In Focus, there are four reasons to anticipate an increase in the active ETF space:
- Mutual fund conversion plans: The Active ETF landscape has revolved around the prospect of converting existing active mutual funds into actively-managed ETFs, as advisors ponder the value proposition of such a move. One of the biggest drawbacks of launching an active ETF is the long wait until it develops a strong track record. With a mutual fund conversion, the mutual fund’s track record and also the fund ratings carry over to the ETF, provided both structures are being managed to the same strategy and by the same manager. [Mutual Fund to ETF Conversions: What You Should Know.]
- More product launches are hitting the market: There hasn’t been a lack of interest in actively managed ETFs if you consider the number of SEC filings that we have seen from mutual funds, existing ETF providers and even big name banks requesting exemptive relief to launch active ETFs.
- An increase in famous manager presence: One of the big things that was seen holding back actively-managed ETFs in the first half of 2010 was the lack of prominent portfolio managers entering the arena and putting their name behind products in order to help attract assets. In June though, Grail Advisors announced a partnership with DoubleLine Capital to launch a new actively managed ETF. DoubleLine was started by the renowned fixed-income manager, Jeffery Gundlach, who had a storied departure from TCW but is spoken of in the same class as Bill Gross.
- An uptick in specific product filings: Of the roughly 22 different companies that currently have filings for Active ETFs with the SEC, quite a large number of them represent “placeholder” filings where the exemptive relief would allow the company to launch “future funds” with literally any investment strategy under the sun. As these mutual fund companies and ETF issuers get a better grasp of what strategies are in demand within actively-managed ETFs, we will likely see more specific product filings and preliminary prospectus being filed. [ETF Providers Hit SEC Roadblocks.]
For more stories about actively managed ETFs, visit our actively managed ETF category.
Tisha Guerrero contributed to this article.
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.