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Does State Street’s Entry Into Actively Managed ETFs Doom Mutual Funds?


At the end of March there were 7,709 different mutual funds to choose from in the U.S., with almost $12.5 trillion in assets invested, the Investment Company Institute reports.

Meanwhile, thanks to the launch of three new ETFs this week by State Street Global Advisors (STT), the universe of actively managed ETFs has now ballooned to 47.

That's right, for every one actively managed ETF, there are currently 164 mutual funds in existence. But fear not, there are dozens more of these new super-liquid upstarts in the chute that will come to the market this year, and countless others are expected to follow.

"These are the first three, but they won't be our last," says Tim Coyne, Global Head of ETF Capital Markets at State Street Global Advisors, adding that they already have three others awaiting SEC approval. "This is definitely not our last foray into the active space," he says in the attached video --which was taped following a conference on the issue, hosted by the New York Stock Exchange.

State Street's big dive into this fast-growing corner of the fund management industry follows the cannonball that PIMCO pulled off in February when it launched an ETF version (BOND) of its insanely large and popular Total Return Fund (PTTAX), which is managed by Bill Gross.

Some have predicted that the emergence of the actively managed ETF (versus the more more common indexed or passive ETF) could make traditional mutual funds obsolete. While it's still early, the route that PIMCO, State Street, and other asset managers appear to be taking is to simply offer both, rather than mandating an either/or scenario. In the short-term, the asset growth and money flows are clearly skewed toward these upstart ETFs—which have 10% of the assets but are getting 50% of the new funds.

"'We're very excited about the active space," Coyne says. "We think it's a very nice compliment to our existing ETF business."

To be sure, anyone who uses a broker or an advisor can expect to be shown more ETFs in the future, rather than less. However, the companies that swim in this end of the pool say once investors get accustomed to the liquidity, transparency, and tax-efficiency, they'll never want to go without it.

"You can come to our website, or any of the sponsors' websites, and see exactly what's in that portfolio," says Noah Hamman, CEO of AdvisorShares, which currently has 13 active ETF products in its stable. "That allows an investor to feel very comfortable about where they're putting their money."