Under The Hood: Actively Global
If ETFs were states, traditional, passively managed long equity and bond ETFs would be Texas. Actively managed ETFs would be Rhode Island. ETF sponsors are trying to change that, a fact highlighted by State Street's (NYSE: STT) State Street Global Advisors bringing three new actively managed products to market late last month
One of SSgA's new additions to its actively managed stable is the SPDR SSgA Global Allocation ETF (NYSE: GAL), which following its April 25 debut has managed to rake in $5.74 million in assets under management. One thing that is immediately noticeable about the SPDR SSgA Global Allocation ETF is its expense ratio and we mean that in a good way. An annual fee of just 0.35% is low in the world of actively managed ETFs and it's far superior to average mutual fund expense ratio.
As is the case with some other actively managed and asset allocation ETFs, GAL is an ETF of ETFs. Meaning its 18 holdings are all other ETFs. Seventeen of them are other SPDRs funds with the PowerShares DB Gold Fund (NYSE: DGL) being the outlier. DGL receives an allocation of just 1%.
GAL does offer global exposure, but investors should be clear that does not mean ex-U.S. exposure as the SPDR S&P 500 (NYSE: SPY) accounts for 23% of GAL's weight. The SPDR S&P World ex-U.S. ETF (NYSE: GWL) receives an allocation of almost 16% while the SPDR Barclays Capital High Yield Bond ETF (NYSE: JNK), the second-largest junk bond ETF, receives a weight of over 11%.
Other asset classes represented within GAL include international corporate bonds, REITs, emerging markets equities, dividend stocks, small-caps, mid-caps and international Treasuries. Given GAL's current asset class mix, it would be reasonable to expect that the ETF pays a dividend and offers a decent yield, but yield information on the fund is not currently available on the SPDRs Web site.
It's tough to pass judgment given that GAL is still in its infancy, but SSgA's timing in rolling out its new actively managed suite appears shrewd because there is some wind at the backs of actively managed ETFs.
"Although we estimate that actively managed ETFs represent roughly 5% of all the assets in U.S.-traded ETFs, we see interest on the rise, as evidenced by the number of such ETFs being offered and launches by various fund managers. We think that both existing fund companies and new entrants will increasingly be looking at actively managed ETFs to both defend market share, and to attract new money," S&P Capital IQ said in a recent research note.
And there's certainly room for actively managed funds such as GAL to grow. Total AUM at U.S.-listed ETFs and ETNs is about $1.2 trillion, but actively managed funds had a less than $6 billion slice of that pie last month.
While actively managed ETFs as a group have flown under the radar over the past several, some fund sponsors such as AdvisorShares, PIMCO and WisdomTree (Nasdaq: WETF) have found success with these products. State Street certainly has the capability to promote GAL and its other active funds, drawing in assets along the way. Whether or not GAL rewards investors for their good faith, well, that remains to be seen.
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