Whose Market Share Do Active ETFs Target?
Thursday, June 24th, 2010ActiveETFs | InFocus writes:
If one was to look at the break up of all assets managed, it makes for interesting discussion to ask which piece of pie the relatively new actively-managed ETF sector will be targeting.
About 85-90% of all assets are actively-managed while the remaining is passively-managed. Within passively-managed assets on the retail front, the assets held within index ETFs overtook assets within index mutual funds for the first time in 2009. However, for investors looking for active management, they had no option all this while but to stick with actively-managed mutual funds because that was the only structure or investment vehicle that allowed them the potential for active management.
With the entrance of actively-managed ETFs on the scene, that ability to provide active management is no longer unique to mutual funds. Retail investors now have a choice when it comes to the way they wish to access active managers. And that’s why Active ETFs will be aiming to take a chunk of the market share currently held by actively-managed mutual funds. The potential for that to happen has already been seen by the large number of major mutual fund players and the big 4 ETF providers who have all filed to launch actively-managed ETFs in the US.
Comparing Active ETFs to other ETF products which are passively-managed is not an apples-to-apples comparison because each of those brings two completely distinct strategies to investors. The only common point is the structure, the exchange-traded fund, through which that strategy is brought to investors. The important comparison to make is that between actively-managed mutual funds and Active ETFs because those are the two products that both provide investors with active management.
There is little doubt that there are still deficiencies in actively-managed ETFs and their structure, especially in the US, could be improved in certain ways in order to make them a better vehicle for housing an active strategy. The arrival of Active ETFs does not mean that mutual funds will be disappearing from the investment scene any time soon. The mutual fund structure is likely more suitable for certain types of active strategies that may involve highly illiquid investments. Also, with mutual funds being so ingrained in investor portfolios and 401(k) plans, they’ll be hard to displace successfully especially given the incentives that fee-based advisors currently have due to trailers they receive from selling mutual funds.
Disclosure: No positions in above-mentioned names.
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