The latest segment of the exchange traded fund industry to get in on active management are the index providers. Four of the largest indexers are selecting methods to outperform the traditional market-cap weighted index, giving active managers a run for their money.
“In addition to taking over a larger share of the broad market, ETFs could also grow in terms of complexity and structure,” The Street reports.
As index-based trading becomes more popular, as in the ETF market, ETF sponsors and index providers will “push to develop new and interesting indexes,” Michael Mundt of Stradley Ronon Stevens & Young said in the article. [ETFs, Innovation, 401(k) Plans and the Dividend Trade]
The four-largest index providers – FTSE International, Russell Investments, S&P Dow Jones LLC and MSCI – are creating new rules-based ways to select stocks that aim to outperform traditional market-cap-weighted indexes, thereby pitting them against active money managers, reports Drew Carter for Pensions and Investments. [Active ETFs: Beyond the Hype]
The line between indexing as a means of performance measurement has been blurred into being providers of insight and strategies with the use of ETFs. Additionally, index providers are busy in the cross-selling and business acquiring taking place within the industry.
“It’s no longer just, here’s indexing, but here’s indexing and here’s how to use it in your portfolio. That will become a differentiator in the marketplace,” Benjamin F. Phillips, of Quirk & Associates LLC, said. “Those firms content to provide only the investment tools “will find themselves less able to defend their fee proposition,” Phillips said.
Index providers are keen to active management just as the first true active ETF has met success. The recent interest and surge in assets has created renewed interest in a sector that has had trouble getting off the ground over the past few years. [PIMCO Total Return Paves the Way for More Active ETFs]
Active ETF management has come into closer focus as the PIMCO Total Return ETF (NYSEArca: BOND) has had huge success, gathering around $2 billion in the past 6 months. While the ETF market is dominated by index products, Pimco sees it “as another means to provide individual investors access to PIMCO’s thinking, strategy and active management,” Chief Operating Officer Douglas M. Hodge said.
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.