Some analysts are calling for assets in actively managed exchange traded funds to hit $1 trillion within a decade. However, one persistent challenge for active ETFs is providing the necessary disclosure for the fund to trade properly without tipping the portfolio manager’s hand.
One idea proposed recently is a hybrid structure that combines features of ETFs and traditional mutual funds, according to a report. [Index ETFs Still Rule Over Active Funds]
The mutual-fund industry wants to develop a hybrid actively-managed structure that will offer the efficiency of ETFs but protect the confidentiality of managers’ trades, new methods of mitigating volatility, absolute-return products and lower costs, reports Daisy Maxey for Dow Jones Newswires. [Surveying Active ETFs]
Tom Faust, chairman and chief executive at Eaton Vance (NYSE: EV), believes that hybrid products will fill the gap between open-end mutual funds and ETFs over the next three to eight years. While Eaton Vance has not planned a hybrid product, the company is discussing the possibility with the Securities and Exchange Commission. [Active ETFs Seen Hitting $1 Trillion]
“The SEC is appropriately cautious,” Faust said. Eaton Vance, though, is confident that the hybrid structure will be approved, according to the Dow Jones report.
Additionally, if the ETF structure can be adapted to a true active strategy, advisors will offer analysis and recommendations of individual managers when working with ETFs. Morningstar has already taken steps to rate ETF managed portfolios. [Morningstar to Rank ETF Managed Portfolios]
Brian Gaffney, chief executive at Allianz Global Investors Distributors, predicted ETFs will siphon assets from mutual funds. So far, ETFs have not fully broken through with institutional investors and advisors lack real incentive to switch, Gaffney added. [CEO Says Industry to Lose Money on Active ETFs]
For more information on mutual funds, visit our mutual funds 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.