There are advantages for mutual fund managers using ETFs, including intraday liquidity and the ability to express tactical views with industry, sector and single-country funds. However, there are also drawbacks.
“Still, a fund that holds an ETF within its top holdings which tracks its benchmark will have a harder time outperforming that benchmark over time, raising the question as to why investors should buy a managed fund instead of a cheaper passive fund,” according to Reuters.
Reuters highlights the Eaton Vance Hexavest U.S. Equity Fund and the William Blair Small Cap Growth Fund as some of the mutual funds that hold ETFs. The Eaton Vance offering holds shares of the SPDR S&P 500 ETF (NYSEArca: SPY) while the William Blair fund owns a stake in the iShares Russell 2000 ETF (NYSEArca: IWM).
Some analysts conclude that fund managers are buying ETFs instead of futures,where margins would climb. ETFs give both managers and investors fast, and cost effective exposure to the market. [Actively Managed ETF Education is Key]
The Causeway International Small Cap Fund owns a position in an India small-cap ETF while the T. Rowe Price Institutional Frontier Markets Equity Fund had a small stake in the Market Vectors Vietnam ETF (NYSEArca: VNM) at the end of last year, according to Reuters.
Tom Lydon’s clients own shares of IWM and SPY.