Although exchange traded funds (ETFs) that are actively managed have yet to really take off, they have already transformed and affected the industry in positive ways.
A report published by State Street Global Advisors (SSgA) called “Vision Focus”, discusses actively managed ETFs and the major changes that they have brought to the ETF landscape. Shishir Nigam for Active ETFs says that the point of the report was to illustrate that both ETF with active management and those that are passively managed are able to coexist, as they serve different needs within a portfolio.
Another point made in the report is that ETFs have had very low expenses and that has been their big selling point. But with actively managed ETFs, it will most likely not be possible to keep expenses at rock-bottom levels because of the increased management expertise required in running the fund. Whether this is true or not is still up in the air, but active ETFs will be cheaper than mutual funds and offer more flexibility at this cost.
As for the transparency and exposure that an active ETF must deliver – that’s another issue that seeks a firm resolution. Some providers are looking to create funds that have less transparency. If they get the nod, it could bring even more active ETF seekers to the scene. [New Active ETF Filings.]
A good idea Nigam has: the financial sector would be a good sector for active management. An active manager operating an actively managed financial sector ETF would be able to make choices of which holdings to include, instead of being forced to provide the investor with market cap weights of each security in the sector. [Waiting for the Active ETF Revolution.]
For more stories about actively managed ETFs, visit our actively managed 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.