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Active ETFs: Beyond the Hype


After the highly successful launch of PIMCO Total Return Bond ETF (BOND) , more large mutual fund providers have been lining up to launch their own active exchange traded fund offerings, but they have not been quick on pulling the trigger.

Currently, T. Rowe Price, Legg Mason, Federated Investors, Northern Trust and Eaton Vance have gained regulatory approval to launch active ETFs, reports Jackie Noblett for Ignites. In the weeks ahead, others like Franklin Templeton and AllianceBernstein are expected to receive exemptive relief as well. [You’re Fired: Investors Drop Underperforming Fund Jockeys and Buy ETFs]

Some fund firms have shown interest in short-duration and ultrashort bond funds as a potential first step into their ETF foray. [Money Market Fund Reform Drives Interest in Short-Duration ETFs]

However, of the firms that have gained the regulatory green light, only Northern Trust has launched an active ETF. The provider also has a line of passive index ETFs under its FlexShares unit. [Advisors Weigh in on ETFs vs. Mutual Funds]

While PIMCO’s BOND ETF story is one others would also like to witness, it may be difficult to replicate. [Several Fund Firms Eye Active ETFs]

“PIMCO was not a good lesson because PIMCO is PIMCO…. PIMCO Total Return is in a class by itself,” Larry Petrone, director of research at kasina, said in the article.

Petrone believes that mutual fund players will most likely steer toward the bond ETF market as investors have shown a growing appetite for fixed-income exposure. However, others think that the momentum is beginning to shift.

“There may be a perfect storm of negativity for firms to enter the market,” Alec Papazian, associate director at Cerulli Associates, said in the article. “Some may be comfortable with fixed-income ETFs, and this may be finally the year where people stop putting all of their money into fixed income. Now, with all of the product development of the last couple of years, some may be thinking maybe they missed the boat.”

Nevertheless, when fund providers do decide to jump in. They want to make sure they are doing it right the first time.

“These are large firms with established brands, and you don’t want to be perceived as a failure in any way if things don’t work out,” Papazian added.

Larry Fink, the CEO of BlackRock, which manages the iShares ETFs, said he expects to see a pickup in active ETFs with a change of the SEC rules on derivative use. [Active ETFs May Boom After SEC Lifts Derivatives Ban]

However, he said there is a lot of “noise” about active ETFs. “We believe in them but we don’t expect them to become anything large to the extent of what core type of ETFs will produce,” Fink said.

For more information on the mutual fund providers, visit our mutual funds category.

Max Chen contributed to this article.

Full disclosure: Tom Lydon’s clients own BOND.

The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. 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.