Active ETFs: What’s All The Hype?

December 14, 2014

There is a lot of hype being made about active exchange traded funds, yet growth in Europe remains limited and investors still need education on the subject.

Most recently the Irish Stock Exchange (ISE) announced it had abolished the need for the daily disclosure of portfolio holdings, bringing it in line with the other exchanges in Europe.

This move will help to open up the European market for active ETFs, but some market participants are quick to argue that the disclosure ban could make the products less transparent.

Could strong growth in the U.S. come to Europe?

However, this arguable lack of transparency has not acted as a deterrent for investors. In the U.S., growth of active ETFs has been healthy. There are now 85 active ETFs globally with a combined $15.2 (€11.2) billion in assets under management as of March 2014.

Bryon Lake, head of Invesco PowerShares EMEA, said active ETFs have not all have been winners.

“There have been specific areas in the transparent active ETF space where there has been success with these products but not across the board,” he said. “In the U.S. there have been a few successful ETFs that raised assets, but there are also some that have struggled to gain any assets.”

There are also compelling statistics to support success from the actively managed space. Currently approximately 85 percent of assets are in active strategies and 15 percent are in passive, according to data from Invesco PowerShares.

Lake added that in Europe the uptake has been limited at best and there hasn’t been a strong leader in the space.

However, the tide could be turning in Europe with the move from the ISE. Active ETFs are looking like they might be garnering interest, but it is slow.

According to Allan Lane, managing partner at Twenty20 Investments, there has been some success from the likes of Source ETP who launched active ETFs in partnership with asset managers GLG and Pimco.

A natural evolution

An active ETF will use an ETF wrapper to track an actively managed strategy. For example, in Europe, the PIMCO Low Duration Euro Corporate Bond Source UCITS ETF (LDCE) and the PIMCO Low Duration US Corporate Bond Source UCITS ETF (LDCU) both track an actively managed strategy from PIMCO.


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