Enter ETFs. If you are on reading this on ETFTrends.com, I would hope ETFs aren’t all that new to you. But actively managed ETFs are a more recent phenomenon (particularly on the equity side). If we could transport a few high-quality active managers to the lower-expense and more tax-efficient ETF wrapper, that would be a win-win for just about everyone.
Luckily, we are starting to see that. 2017 was the best year yet for active ETF launches and flows. But, even after a great year, active ETFs still make up a measly 1% of total ETF assets! The runway is long, and it’s a great opportunity for active managers to reintroduce their management styles and strategies to a newer audience.
Within fixed income ETFs, active managers have been prevalent and successful. Front-running and transparency issues are seemingly of less importance, and some of the best and largest names in active management have entered the fold. Within equities, the adoption has been slower, particularly as active managers wait for regulatory answers to non-transparent active ETFs structures. However, we have seen high-profile managers enter, or at least file for entry into, the active transparent space.
2018 certainly may require more active navigation than 2017, which was as smooth a market as we have seen in decades. Rising interest rates, elevated valuations, dropping correlations, and other factors could all bode well for active managers to outperform in the coming years.
So, get out there, and get active! Investors may find active managers do add value and the old adage is true: you get what you pay for.
Grant Engelbart, CFA, CAIA, is a Portfolio Manager at CLS Investments, a participant in the ETF Strategist Channel.
This information is prepared for general information only. Information contained herein is derived from sources we believe to be reliable, however, we do not represent that this information is complete or accurate and it should not be relied upon as such. All opinions expressed herein are subject to change without notice. The graphs and charts contained in this work are for informational purposes only. No graph or chart should be regarded as a guide to investing.
1173-CLS-1/31/2018