U.S. Markets close in 3 hrs 47 mins

Active ETFs are ‘New Distribution Channel’ for Money Managers


Some asset managers are reluctant to launch active ETFs because they don’t want to reveal their investment strategies and are concerned about cannibalizing their existing mutual funds.

However, more fund companies are filing to launch actively managed ETFs because they don’t want to get left behind as more investors migrate to the low-cost and transparent financial products. [Special Report on Active ETFs]

Money managers see ETFs as “a new distribution channel,” and “are additive in many cases” to other investment structures, including mutual funds, said Deborah Fuhr, co-founder of research firm ETFGI, in a Pensions & Investments report.

Most ETFs track indices rather than having an active manager calling the shots. There are 1,445 ETFs trading in the U.S., and only about 58 of them are active. [Active ETF Market Gearing Up]

Yet actively managed ETFs are viewed as driving the next round of the industry’s growth. [Growing Interest for Actively Managed ETFs]

PIMCO Total Return ETF (BOND) is the largest active fund in the business and is managed by bond guru Bill Gross. It’s the ETF version of the huge mutual fund of the same name.

“There aren’t a lot of active ETFs out there — less than 1% of all ETF assets are in actively managed ETFs,” Fuhr said. “To be fair, PIMCO is one of the few big firms with success in active ETFs. Others who offer them don’t have the global recognition with a long track record in active funds.”

Also, ETFs requiring daily portfolio disclosure is less of an issue for fixed-income funds than equity managers.

The transparency issue remains as a “fundamental impediment” to active ETFs, particularly equity funds, said Stephen Clarke, president of Navigate Fund Solutions LLC, subsidiary of Eaton Vance Management. Eaton Vance has filed to launch a new type of ETF that would disclosure its holdings less frequently. [ETMFs Could Change the Fund Industry]

“Active ETFs that are currently available must be fully transparent on a daily basis,” Clarke said in the P&I report. “Most equity portfolio managers don’t want to do this for the risk of market participants seeing what you’re trading. PIMCO has successful ETF products, but they aren’t equity products.”

“Cannibalizing your mutual funds is a concern,” added Bill Golden, managing director and head of U.S. product at Legg Mason, in the story. “But active ETFs are still an important consideration. … For equity strategies, I would have a hard time with transparency. Not to say there aren’t other strategies that might work, but to clone an equity mutual fund with significant assets would be a tough decision.”

The opinions and forecasts expressed herein are solely those of John Spence, 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.