Behind Active ETFs’ Small Victories

May 20, 2019

Perhaps its biggest competitive challenge, however, is its price tag—something that weighs on a lot of actively managed ETFs. EMLP costs 0.95% in expense ratio, more than twice the price tag of the competing Global X MLP ETF (MLPA) and more expensive than the Alerian MLP ETF (AMLP).

Still, in the past 12 months, EMLP has delivered stellar performance relative to some of its peers:

 

 

Another success story among active names is the lineup of ARK ETFs.

As a firm, small active manager ARK Funds has become known for its ETFs’ strong performance and unique portfolio allocations—ARK funds were among the first to offer investors access to bitcoin, for example.

Focusing on what it calls disruptive innovation, ARK has shown that a hands-on approach to a segment often populated by smaller-cap, "growthy" names can be an interesting choice. And investors have taken notice. The ARK Innovation ETF (ARKK) is a global equity fund that has amassed $1.6 billion in assets. The ARK Web x.0 ETF (ARKW), also global equity, now has $500 million. Today ARK commands nearly $3 billion spread across seven ETFs.

 

Charts courtesy of StockCharts.com

 

These are just some examples of actively managed ETFs that are working, finding investor dollars despite often heftier price tags.

If success in this space is hard to come by given the undisputed benefits of passive management, fund issuers continue trying.

The latest move in the effort to push active management forward in the ETF world is nontransparent active ETFs.

Nontransparent: Innovation Or Distraction?

Earlier this year, Precidian Investments finally got regulatory approval for its proposed nontransparent actively managed ETFs. The new structure will function much like an ETF except that its portfolio holdings will not be transparent to investors.

In theory, the idea is to offer investors access to active managers’ secret sauce without exposing them to the risk of front-running. Precidian says this wrapper would also mean lower costs, greater efficiency and a lot of flexibility to active managers themselves.

But is a nontransparent active ETF really going to be a game changer for actively managed ETFs? A look at asset flows over the last several years points only in one direction: out of active and into passive. It’s hard to image anything derailing this trend.

“There's no question the asset management industry is excited about nontransparent active, but to make a case that the generic ETF investor is interested in it, that’s hard,” Kashner said.

“I believe nontransparent active is a solution in search of a problem,” she added. “To put it more definitively, the problem is in the traditional active asset management space, and if they think they're going to solve it by putting the same product in a different wrapper, they haven't convinced me yet that they’ve solved an investor problem.”

Contact Cinthia Murphy at [email protected]

Find your next ETF

Reset All