Axel Merk: A Dollar Bear And An ETF Bull

April 04, 2012

The easy-money era isn’t over yet, and the ETF era has just begun, Axel Merk says.

 

Axel Merk, the money manager known for his nearly $600 million Merk Hard Currency Fund, hopes to become even more famous for the Merk Hard Currency ETF once it comes to market.

That’s because Merk is a strong believer that ETFs—and active ETFs in particular—have a bright future. He told IndexUniverse.com Managing Editor Olivier Ludwig he expects established mutual fund companies are likely to start launching ETF versions of established funds, much as Pimco has done with its Total Return Fund.

He also said that the era of easy money from the Federal Reserve and other central banks isn’t yet over, which is why he remains bullish on commodity currencies and precious metals and bearish on the dollar.

 

Olivier Ludwig: When I saw the registration statement describing the Merk Hard Currency ETF, the first thing that came to mind was that this sounds a little bit like the Pimco Total Return ETF. It’s on a smaller scale, but it’s similar insofar as a flagship mutual fund wrapper is now being contemplated in an ETF wrapper. Is that an apt comparison?

Axel Merk: What we see in the industry is that a lot of shops are taking their flagship product and are creating an actively traded ETF version, or considering that. Many, many companies realize that ETFs are the future, and are trying to figure out how to address that.

Ludwig: Who comes to mind besides Pimco when you make that general observation?

Merk: If you look at the exemptive relief filings, just about all the big shops have filed—reluctantly. I say “reluctantly” because most of the big shops are trying to protect what I would call their legacy business.

Ludwig: So you’re saying that if there’s any cannibalization, it’ll be strictly internally? Is that a fair way to interpret what you’re saying?

Merk: Well, that’s one way of looking at it. Anybody that looks at the ETF space realizes there is a lot you can do there.

Ludwig: You’re talking about a large fund that would, right out of the gate, by dint of its overall popularity, have good liquidity and bid/ask spreads would be tight—this sort of thing?

Merk: You want to align everything to make any product in the ETF market as successful as possible. And historically speaking, products have been successful when they have, out of the gate, been able to attract a significant number of assets and have then also been able to attract trading activity.

And so the larger conclusion, of course, is that you’re not doing that with an unformed strategy. You’re trying to do that typically with an established product. And that’s why we see that a lot of companies are looking at offering their flagship product as an actively traded ETF.

Ludwig: Yes, as in the Pimco Total Return Fund and the Merk Hard Currency ETF.

Merk: I unfortunately cannot comment on the filing that we have made.

 

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