“If you have spent years as an asset manager explaining why the active approach is good, and why you are using an active approach, say you are a value or a high-conviction investor, for example, you will have to come out with a product that reflects that. There is absolutely the risk of hypocrisy here, so firms have to be very thoughtful about what they launch,” Li said.
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Consequently, many active managers who are stepping into ETFs are also exploring alternative index-based strategies or smart beta options that eschew traditional market capitalization-weighted methodologies for strategies that look more like actively managed styles.
“The ETF is just a wrapper. Often you have a plain vanilla or market-cap weighted index put into an ETF but you can put all different kinds of investment types into an ETF wrapper,” Lake added.
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