The vast majority of ETFs currently on the market are passive funds that track benchmarks. There are some ETFs that follow quantitative, rules-based indexes that incorporate elements of active management in an effort to beat the market. There are also several purely active ETFs, although none that boast the pedigree and track record of a Bill Gross.
Josh Brown at The Reformed Broker blog thinks the launch of PIMCO Total Return ETF marks the opening salvo in the demise of mutual funds. Active ETFs will be a major trend in 2012, he predicts.
“I think you’re going to see star managers enter this space,” Brown said. “They see that there’s a ton of money to be raised. It’s going to be the new wrapper of choice.” [Active ETFs Seen Taking Off in 2012]
In a recent piece for Fortune, Brown covered the launch of PIMCO Total Return ETF, but from the perspective of a decade in the future.
“PIMCO saw an inevitability that the other mutual funds were slow to accept,” Brown wrote. “They saw that as brokers morphed into advisers, broker-sold products like mutual funds would eventually lose assets by attrition (there once was an old saying that “mutual funds are sold, ETFs are bought”). PIMCO recognized that what people hated most about their mutual funds were their high expense ratios, the 12-b1 marketing fees and the inflexibility of a product that could not be purchased or liquidated until after the market close each day.”
He concludes: “The mutual fund industry died from a thousand cuts — but it was PIMCO who drew the first blade in 2012.”