Actively managed exchange traded funds have been hyped as the industry’s next big growth area, but so far assets represent a small portion of the overall business.
Despite regulatory hold-ups and portfolio disclosure issues, many investment managers are lining up to list active ETFs.
“In some cases, where you have the secret hidden sauce, it’s better in a mutual fund,” said Greg Friedman, managing director of products for Russell’s ETF business. “I think the mutual fund and the ETF still stand as a complement to each other.”
James Armstrong for Traders Magazine reports that there are about 40 actively managed ETF trading now, in the U.S. This opens up the space for opportunity and market share as the interest in these funds escalates.
“At present, just $5 billion of the current $1 trillion-plus that is invested in ETFs is invested in actively managed funds. Additionally, well more than half of that $5 billion is soaked up by 3 ETFs–Pimco Enhanced Short Maturity Strategy ETF (NYSEArca: MINT), WisdomeTree Emerging Markets Local Debt (NYSEArca: ELD), WisdomTree Dreyfus Chinese Yuan (NYSEArca: CYB). In fact, equity-based actively managed ETFs make up a fraction of that $5 billion–just $83 million or so,” Robert Goldsborough wrote on Morningstar. [ETF Chart of the Day: Pimco Enhanced Short Maturity Strategy]
Major mutual fund providers such as Fidelity, Eaton Vance and T.Rowe Price have all filed with Securities and Exchange Commission to offer actively managed funds. Some providers are even offering their most successful mutual funds in an ETF format. [Active ETFs Set to Support industry Growth]
Many industry skeptics don’t think that active ETFs will ever have as much market share as mutual funds or passively traded ETFs. Transparency still remains the largest concern, as the opportunity for front running the competition is not appealing. Even if mutual fund assets decline, the higher fees that active ETFs incur will be a hurdle. [Active ETFs Seen Hitting $1 Trillion Within a Decade]
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.