Actively managed exchange traded funds (ETFs) have been touted as the next generation investment tool to hit the markets. However, active ETFs haven’t exploded as much as most ETFs enthusiasts had hoped.
Christian Magoon, CEO of Magoon Capital, remarked that “the promise of coupling the efficiency, transparency and flexibility of the ETF structure with skilled active managers seemed like a blockbuster combination,” writes Sheryl Nance-Nash for Daily Finance. [Neuberger Berman Plans Active ETF Launch.]
Currently, the 30 actively managed ETFs now available only manage $2.4 billion in assets as compared to the total assets in the ETF market of around $790 billion. Nevertheless, active ETFs have performed on par with passive ETFs, gaining 5.95% compared to the 5.90% from their passive counterparts. [Active ETF Providers Drop Derivatives.]
The big hurdle in this industry is transparency. “Most fund managers do not want to disclose what positions they are holding or even considering buying as to not alert other managers of their investment strategy or potential portfolio,” comments Cameron Short, senior vice president of Stifel Nicolaus. [iShares Will Keep Active ETFs Transparent.]
Actively managed ETFs are rather new to the scene and have not garnered a long enough track record to entice further investments – “it takes three to five years of performance before sophisticated investors can get comfortable with a new product,” David Marani an account executive with Drum Associates adds. They are relatively new, and they’re a different type of ETF than investors might be used to. It’s too early to call active ETFs a success or a failure.
For more information on active ETFs, visit our actively-managed ETFs category.
Max Chen 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.