Mutual fund families are beginning to dip their toes into the waters of exchange traded funds with new actively managed offerings, but some have already entered the market through partnerships with ETF providers.
For instance, State Street Global Advisors launched three actively managed equity ETFs in partnership with Massachusetts Financial Services, including the SPDR MFS Systematic Core Equity ETF (NYSEArca: SYE), SPDR MFS Systematic Growth Equity ETF (NYSEArca: SYG) and SPDR MFS Systematic Value Equity ETF (NYSEArca: SYV). [SSgA, MFS Partner on Three New Active ETFs]
Additionally, Emerging Global Advisors partnered with TCW to launch a suite of passive emerging market bond ETFs. The EGShares TCW EM Short Term Investment Grade Bond ETF (NYSEArca: SEMF), EGShares TCW EM Intermediate Term Investment Grade Bond ETF (NYSEArca: IEMF), and EGShares TCW EM Long Term Investment Grade Bond ETF (NYSEArca: LEMF) began trading in early January. [EGShares, TCW Partner on EM Bond ETFs]
The most prominent pairing came when BlackRock (NYSE: BLK) and Fidelity Investments announced a closer partnership that led to the October 2013 launch of 10 passive U.S. sector Fidelity ETFs subadvised by BlackRock. [BlackRock, Fidelity Partnership Paying Off in Spades]
Robert Goldsborough, a fund analyst at Morningstar, warns that investors should be aware that the added expertise from the partnerships could come with extra costs.
“While partnerships strike us as solid ways to develop strong products, I’d hasten to add that the presence of an added party in the management of an ETF has the potential to significantly increase the fund’s costs,” Goldsborough said.
Fidelity’s 10 sector ETFs, though, are the cheapest equity sector ETFs on the market, which is not surprising since the funds have to come with some competitive edge when put up against the older Vanguard and SPDR sector funds.
Additionally, the State Street-MFS funds have a reasonable 0.6% expense ratios for active strategies while the Emerging Global-TCW bond ETFs charge 0.65%, which is slightly more than other emerging market debt ETFs.
Nevertheless, the increased activity should help expand the tools available for ETF investors.
“We would not be surprised to see more ‘marriages’ between traditional fund managers and ETF issuers in the future,” Goldsborough added. “Such pairings can play to the respective firms’ strengths and can help get investment ideas to market faster. ”
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Max Chen contributed to this article.