Passive exchange traded funds that follow indexes still account for the lion’s share of the business, despite years of hype over the arrival of actively managed ETFs.
“It’s a question of when, not if, active ETFs will be part of the landscape,” said Tony Rochte, head of the North American intermediary business group at State Street Global Advisors.
Although over 800 active ETFs have been filed with regulators, he noted that less than 1% of total ETF assets reside in active funds. Speaking at the recent Morningstar ETF Invest Conference, the State Street executive said the business needs to focus on “responsible innovation,” adding the market “hasn’t voted yet on active ETFs.”
Sue Thompson, head of BlackRock’s registered investment advisor group and 401(k) sales, said the wider proliferation of active ETFs is going to happen, although regulatory approval to launch funds takes time.
Some of the challenges for active ETFs include transparency and the ability to trade derivatives such as futures and options, added Rick Genoni, head of Vanguard’s ETF product management department. He said there are three subcategories within active ETFs: “pure” active funds, funds of funds, and active strategies that are baked into rules-based indexes.
Also, ETFs’ involvement in recent trading scandals and a media backlash may put some active fund plans on hold. [BlackRock Calls for More Disclosure, Transparency in ETFs]
Noah Hamman, chief executive of AdvisorShares, told Reuters that a result of the increased scrutiny is that fewer firms may launch actively managed ETFs because it may take even longer for the SEC to grant these firms exemptive relief.
The average wait time is already close to two years, he said. “Anytime a story comes up with ETFs, the regulators get nervous,” Hamman said in the Reuters report.
Most of the assets in actively managed ETFs are concentrated in only a few funds. [Surveying Actively Managed ETFs]
Earlier this year, BlackRock CEO Larry Fink said the business will have a difficult time turning a profit on actively managed ETFs until they gain more traction. [BlackRock CEO Says Industry to Lose Money on Active ETFs]
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