New Wave of Active ETFs Could Come from Mutual Fund Providers

ETF Trends

Actively managed exchange traded funds only make up a fraction of the ETF universe, but activity is picking up as more mutual funds look at this segment as their way into the growing industry.

Over the past two months, Guggenheim Partners, Eaton Vance and Precidian Investments have received comments from the Securities and Exchange Commission to launch new types of actively managed ETFs, Bloomberg reports. [Fund Firms in No Hurry to Launch Active ETFs: Report]

“The next wave of ETF sponsors are all going to be mutual-fund companies,” Reggie Browne, head of ETF trading at Cantor Fitzgerald LP, said in the article. “This is just the tip of the iceberg in terms of the entrance of such strategies.”

Actively managed ETFs enjoy some of the efficient and cost-saving aspects found in the ETF structure, but instead of passively tracking an underlying index, an active ETF’s holdings are selected by a fund manager.

Many money managers have been loath to introduce an active ETF due to daily transparency rules, which would make it easier for competitors and other traders to anticipate or copy the ETF’s strategy. [Eaton Vance’s New ETF Structure Could be a Game Changer]

T. Rowe Price, BlackRock, State Street Global Advisors and Vanguard have offered new proposals to the SEC, seeking to avoid the daily disclosure of holdings in a type of new non-transparent ETF structure. Eaton Vance also filed for a non-transparent exchange traded managed fund, or ETMF, structure. [Non-Transparent Active ETFs are not a Slam-Dunk]

“There is a tremendous amount of potential there in terms of the transformative effect this could have on how funds are distributed,” Ben Johnson, director of passive-funds research at Morningstar Inc., said in the article.

Nevertheless, the SEC will be reviewing the process as there are many kinks to still work out.

“It could be perhaps a year before they come out in the marketplace,” Browne added.

There are 62 actively managed ETFs on the market, with $14.5 billion in assets, according to XTF. In comaprison, there are 1,506 U.S.-listed ETFs with almost $1.6 trillion in assets.

For more information on active ETFs, visit our actively managed ETFs category.

Max Chen contributed to this article.

The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Mr. Lydon serves as an independent trustee of certain mutual funds and ETFs that are managed by Guggenheim Investments; however, any opinions or forecasts expressed herein are solely those of Mr. Lydon and not those of Guggenheim Funds, Guggenheim Investments, Guggenheim Specialized Products, LLC or any of their affiliates. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.

View Comments