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More Mutual Fund Shops Board Mighty ETF Bandwagon

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T he trend of mutual fund companies hopping onto the ETF bandwagon accelerated in 2015. The newest entrant is OppenheimerFunds, which bought out small ETF shop RevenueShares and rebranded their ETFs with its own name in December.

Mutual fund shops and other investment managers are entering the exchange traded fund marketplace, says Matt Hougan, CEO of, by acquiring ETF firms, launching their own products or filing to launch ETF-like vehicles.

ETFs tend to offer more holdings transparency and tax efficiency than mutual funds . "Mutual funds are an archaic technology, they're the horses-and-buggies" of the investing world, Hougan said.

Assets in U.S. ETFs have ballooned nearly 600% over the past decade to $2.104 trillion, says the Investment Company Institute. Mutual funds hold $15.97 trillion.

Year to date through Nov. 30, U.S. ETFs absorbed $205.91 billion in new investor money. The U.S. open-end mutual fund industry saw $28.26 billion in net inflow, according to Morningstar Inc.

Investors' appetite for catchily named "smart beta" ETF investing strategies bolstered the join-the-bandwagon trend. These rules-based ETFs seek to boost returns or adjust risk vs. traditional, cap-weighted index-tracking ETFs.

ETF Innovations

Goldman Sachs Asset Management, with roughly 200 mutual fund share classes and $43 billion in assets under its belt, in October launched two multifactor smart beta ETFs. A flagship product holds U.S. large-cap stocks and selects companies based on value, quality, momentum and low volatility factors.

Also in October, John Hancock Investments debuted six ETFs, some of which take a factor-based approach to investing in U.S. equity sectors.

Goldman and Hancock tapped into their active management expertise with their new factor-based, passive ETFs, says Todd Rosenbluth, ETF and mutual fund research director at S&P Capital IQ.

Smart beta ETFs straddle the active-passive boundary in fund investing. "It's the new active," Hougan said.

TheGoldman Sachs ActiveBeta U.S. Large Cap Equity ( GSLC ) has what he describes as "an extraordinarily low price on a lead product." It has a 0.09% expense ratio, or $9 in annual fees for every $10,000 invested, for a portfolio of 439 stocks.

Meanwhile, fixed-income mutual fund giant DoubleLine partnered with an established ETF sponsor to offer an active bond ETF.SPDR DoubleLine Total Return Tactical ( TOTL ) offers exposure to mortgages, corporate and emerging market bonds selected by experienced managers including "bond king" Jeffrey Gundlach.

TOTL has racked up more than $1.7 billion in assets since its Feb. 23 launch.

Many mutual fund companies don't like the requirement that ETFs offer daily disclosure of holdings . That raises the risk of front-running by predatory traders.

Mutual funds are required only to disclose holdings quarterly.

Eaton Vance's NextShares is seeking permission to make disclosures as late as quarterly, says Stephen Clarke, president of NextShares Solutions. NextShares, a new type of actively managed exchange traded product, may launch as early as the first quarter of 2016.

This exchange traded managed fund has aspects of both ETFs and mutual funds.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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