Given their rapid rise to glory and already-dominant slice of daily trading volume, it seems odd to consider exchange traded funds, or ETFs, as an underdog industry. But in one particular area, they are. Actively managed ETFs are in a knock down, David & Goliath-like battle against traditional mutual funds, which still have almost 10-times the assets under management.
But according to Jonathan Steinberg, founder & CEO of WisdomTree (WETF), the tide is turning because he says actively managed ETFs are just a better mouse trap.
"The ETF is to the mutual fund, what the internet is to the newspaper," Steinberg says in the attached video, shot after a panel discussion on the issue hosted by the New York Stock Exchange. "Because of the added functionality, full transparency, greater liquidity, greater tax efficiency, those characteristics are so important for investing. That's why I think it's a better mouse trap."
Amazingly, in the vastly growing universe of some 1,500 different exchange traded products, there are currently 47 actively managed ETFs to choose from, meaning the remaining 97% of products fall into the passive, unmanaged or specialty categories. Of those 47 actively managed funds, Steinberg's firm currently runs 14 of them, giving them a quick lead in a market segment that he says is set for "literally trillions and trillions and trillions of future growth."
In fact, he predicts active and passive ETFs will ultimately take 50% of the long-term assets, up from just 10% today, without giving a specific time frame. Fund flow trends suggest that day could come sooner rather than later, however, since Steinberg says that a 10% slice of the business is already taking in 50% of the new investing money.
Transparency, liquidity, tax efficiency and cost are some of the key advantages cited for the clear and growing preference for ETFs.
"That's what makes us the best game in town for investors and it is the reason why ETFs are growing faster than mutual funds," he states.
And with mega-firms like State Street (STT), PIMCO, and many more joining the ranks with actively managed ETF offerings of their own, it's safe to say this trend has only just begun.