Actively Managed ETFs On The Rise, S&P Says

When actively managed ETFs first burst onto the exchange traded products scene a few years ago, they did so with a fair amount of hype, but investors didn't immediately warm to the asset class, showing a preference for the traditional, passively managed exchanged traded fare. Times change and while actively managed ETFs account for less than 5% of the more than $1 trillion in U.S. exchange traded products assets under management, actively managed ETFs are on the rise, according to Standard & Poor's. S&P said that as of mid-May, there were 33 actively managed ETFs with $4.4 billion in AUM trading in the U.S. with about 90% of those assets devoted to bond or foreign currency funds. In terms of equity-based actively managed ETFs, that universe is populated by just eight funds with $100 million in AUM, S&P notes. S&P highlights one of the issues facing actively managed ETFs as they try to gain more traction with investors: “In our view, a primary obstacle to growth in the introduction of actively managed ETFs in general is the likely reticence of successful fund managers to abide by the expectation that ETF holdings be disclosed on a daily basis. Such transparency could hinder the ability of an active manager to build a position in an attractively priced security,” analyst Tom Graves said in a note. Graves notes that actively managed ETFs that take a funds of funds approach could ease some of the disclosure burden. Funds that fall into this category include the Cambria Global Tactical ETF Fund GTAA, the Dent Tactical ETF Fund DENT, Mars Hill Global Relative Value ETF GRV and Russell Equity ETF ONEF. “We think actively managed ETFs are likely to have the greatest appeal in asset categories where investors think assets are more likely to be priced inefficiently; areas where they are lacking other ready and cost-effective access to a particular type of asset; and offerings where there is a highly regarded fund manager with a good track record for a similar fund,” Graves said in the note. The analyst highlighted the iShares Diversified Alternatives Trust ALT, which has almost $120 million in AUM, as one example of an ETF that gives investors exposure to mispriced assets. S&P said it views WisdomTree as the leader among issuers offering actively managed bond ETFs. The firm's WisdomTree Emerging Markets Local Debt Fund ELD and WisdomTree Asia Local Debt Fund ALD have been two of the most popular actively managed ETFs, attracting a combined $1.2 billion in AUM.