The WSJ reports that actively managed ETFs are slowly making headway:
Big-name fund firms are finally embracing actively managed exchange-traded funds, just not in the sweeping way many once envisioned.
The past few weeks have seen a spate of active ETFs unveiled by some of the best-known ETF firms, including BlackRock’s iShares unit, Allianz’s Pacific Investment Management Co. and Vanguard Group.
But for a number of reasons, both philosophical and commercial, these giant firms have so far steered clear of listing active stock funds, focusing instead on investing niches such as commodities and Treasury Inflation-Protected Securities, or TIPS.
To be sure, it’s too early to tell whether active ETFs will be confined to niche status in the long run. Some smaller players, including Grail Advisors and AdvisorShares Investments, have launched stock-picking versions this year. It’s possible these funds could one day rival those of Fidelity Investments or American Funds—although that day remains a long way off.
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BlackRock’s iShares unit launched its first actively managed ETF in November, a fund that employs a number of exotic investment strategies, such as betting on small price discrepancies between different types of futures contracts.
IShares says the new fund shares the same goal as its other ETFs, which is to give investors access to a certain type of investment. But in this case, the firm said, an active fund seemed like a more convenient vehicle. In fact, iShares even goes so far as to play down the fund’s novelty. The iShares Web site avoids calling the new ETF “active,” adding merely that it “is not intended to track the performance of any index or other benchmark.”
Of the three big-name firms, Pimco seems least ambivalent about active ETFs. Since its first ETF started up in June, the bond-fund giant has launched four more passive ETFs but also two active funds, one aiming at short-term bonds and another at intermediate-term municipals.
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One other factor helps explain why active bond ETFs may be catching on sooner than stock-market versions. The first active ETFs began trading in the spring of 2008, not the best time to launch a stock fund given the bear market of last year and early this year.
A related factor: So far this year, investors have poured more than $40 billion into bond ETFs, while yanking about $20 billion from stock vehicles, according to the National Stock Exchange.
Again, I welcome all new options that expand investment opportunities. That does not mean that every new product is a sensible one for the individual investor, but at least it’s worthy of examination.
In the case of active ETFs, or any other new “invention”, I will not jump on the bandwagon right away, but watch price developments and volume for some nine months. That will allow me to better determine momentum changes and chart trend direction while examining comparisons with other ETF choices.
If these products hold up well, they will then become a part of my data base and serve as an additional resource for the next buy cycle, whenever that occurs.
Comments 3
Ulli,
Great blog message today. It would be nice if some of the better performing mutual funds out there were to become an ETF as it would make getting in and out easier. We trend followers have to deal with long holding periods and short term redumpsion (pun intended) periodically if when the dreaded whipsaw occurs and this would remove that problem.
TM,
Short-term redemption fees of $49.95 are not that bad….I remember when they used to be $200.
Ulli…
Great discussion. So what are we going to do to get legislation in place to force brokers to show all fees on investment account statements?
We all know the "1-2% of assets" is a giant rip-off, particularly 'advisor' funds linked to the average joe's 401k.