Market Overview

S&P Sees Some Momentum For Actively Managed ETFs


Actively managed ETFs burst onto the exchange-traded products scene in 2008. Since then these funds, many of which feature expense ratios that remind investors more of mutual funds than ETFs, have struggled to gain traction with investors. That might be starting to change, according to S&P Capital IQ.

"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 research note.

At the end of March, U.S.-listed ETFs and ETNs had a combined $1.2 trillion in assets under management, according to ETF Industry Association data, but actively managed ETFs had just $5.8 billion in AUM as of mid-April. Despite what is clearly an uphill battle against traditional ETFs, fund sponsors continue bringing new actively managed products to market.

In April, State Street Global Advisors, the second-largest U.S. sponsor behind iShares, introduced the SPDR SSgA Multi-Asset Real Return ETF (NYSE: RLY), the SPDR SSgA Income Allocation ETF (NYSE: INKM) and the SPDR SSgA Global Allocation ETF (NYSE: GAL). The firm may also roll out the SPDR SSgA Aggressive Global Allocation ETF, which will trade on the NYSE with the ticker "AGRA" and feature an expense ratio of 0.35%. The SPDR Blackstone/GSO Senior Loan ETF, which be NYSE-listed with the ticker "SRLN."

This week, PIMCO introduced the Global Advantage Inflation-Linked Bond Strategy Fund (NYSE: ILB), which is actively managed and already has $13 million in AUM, according to the PIMCO Web site.

Of the 47 actively managed ETFs on the market today, 29 have been introduced since 2010.

"We think actively managed ETFs are likely to have the greatest appeal in: (1) asset categories where investors think that assets are more likely to be priced inefficiently (thus, creating potential outperformance opportunities for skilled managers); (2) areas where they are lacking other ready and cost-effective access to a particular type of asset; (3) offerings where there is a highly regarded fund manager, with a good track record for a similar fund," S&P said in the note.

S&P noted that actively managed ETFs are likely to have higher costs "largely because of research costs associated with active management, and trading costs related to portfolio turnover."

Current leaders in the actively managed ETF space include PIMCO whose PIMCO Enhanced Short Maturity Strategy Fund (NYSE: MINT) has almost $1.6 billion in AUM. The PIMCO Total Return Exchange-Traded Fund (NYSE: BOND), the ETF equivalent of Bill Gross' Total Return Fund, has $664.3 million in AUM and is barely more than two months old.

WisdomTree has also carved out an impressive actively managed presence. The WisdomTree Asia Local Debt Fund (NYSE: ALD) has $409.3 million in AUM and the WisdomTree Emerging Markets Local Debt Fund (NYSE: ELD) has almost $1.3 billion in AUM.


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