Active ETFs have yet to garner significant assets, but they
stand a reasonable chance of catching on because the number of big
firms bringing products to market is increasing, according to a
report from S&P's MarketScope Advisor.
The report said that as of late April, 47 active ETFs with $5.8
billion in assets made up less than 0.5 percent of U.S.-listed ETF
assets, which amount to $1.2 trillion-a percentage consistent with
data compiled by IndexUniverse.
But with big ETF firms, such as State Street Global Advisors and
Pimco now moving aggressively into the space, that could change,
the report said. SSgA recently launched its first active funds, and
Pimco rolled out an ETF version of its Pimco Total Return Fund on
March 1. Pimco already manages the biggest active ETF, the $1.55
billion Pimco Enhanced Short Maturity Strategy Fund
The Pimco Total Return ETF (NYSEArca:BOND) gathered almost $700
million in just over two months. WisdomTree, another player in the
active ETF space, has the second-biggest hit, the WisdomTree
Emerging Markets Local Debt Fund (NYSEArca:ELD), which has $1.26
billion in assets as of Friday, May 4.
However, the most successful active ETFs to-date have been in
the fixed-income and currency asset classes, the report said. About
2 percent of all fixed-income ETFs are active, and that number
jumps to about 15 percent in the realm of currency, according to
data compiled by IndexUniverse.
Active ETFs haven't yet penetrated the world of equities in any
meaningful way. All of the biggest and most liquid ETFs are index
equities strategies, most notably the SPDR S&P 500 ETF
(NYSEArca:SPY), which has just under $100 billion in assets.
Obstacles And Suggestions
MarketScope identified several potential obstacles to
introducing actively managed ETFs. The main one is that successful
fund managers are likely to be discouraged from offering active
ETFs because of the daily portfolio disclosure required under
current regulations. That can hamper a fund manager's ability to
build up competitive positions in securities.
One way the disclosure expectations associated with ETFs could
be reduced, according to MarketScope, is by establishing ETF "fund
of funds" that could soften the importance of changes in particular
Another obstacle to launching actively managed ETFs is that the
performance of track records for these funds are relatively limited
since most of them are so new. MarketScope notes that of the 47
actively managed ETFs that they reviewed, 29 had been launched
since 2010 and the oldest date back only to 2008.
Actively managed funds generally are more expensive to run
because of the trading and increased research costs involved,
according to MarketScope. This may be one reason that four active
funds have closed since 2010, it said.
MarketScope is holding out hopes for active funds to attract
more assets and generate significant returns. It said that active
ETFs may be initially priced with artificially low expense ratios
in the hopes of attracting more assets. Once the funds gather more
assets, fund managers would be able recoup costs.
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