Active management in ETFs might finally be catching on.
A total of 27 new ETFs have come to market so far this year, a pace that’s roughly five times the number of launches seen in the same year-earlier period. The jump in launches is noteworthy, but even more so is the number of actively managed funds among them.
ETF analysts and industry experts have long called for the growth of active management in the predominantly passive world of ETFs. But the segment remains small, comprising only 74 active funds with combined assets of roughly $14.5 billion, according to our data. For perspective, the entire ETF universe today consists of 1,554 different funds, with nearly $1.7 trillion in assets among them.
But our tally shows that in the first five weeks of 2014, eight actively managed ETFs have come to market, with names like State Street Global Advisors and Pimco behind them. Some of these funds also mark new partnerships between ETF issuers and mutual fund giants in a trend that seems to be picking up steam.
State Street, the second-largest provider in the country, with more than $355 billion in assets under management—and the name behind the likes of the SPDR Gold Trust (GLD)—had launched three active U.S. equity ETFs this year that rely on mutual fund manager Massachusetts Financial Services for portfolio management.
The funds—one core-, one growth- and one value-focused—slice and dice U.S. large-cap equities looking for undervalued stocks, or those that show high growth potential based on fundamental and quantitative analysis.
The SPDR MFS Systematic Core Equity (SYE), the SPDR MFS Systematic Value Equity (SYV) and the SPDR MFS Systematic Growth Equity (SYG) each cost 0.60 percent in expense ratio each—or $60 per $10,000 invested.
Pimco, the largest bond manager in the world, has rolled out a pair of active income-seeking strategies this year that will join the two most successful active ETFs in the market today: the Pimco Enhanced Short Maturity Strategy (MINT), with $3.95 billion in assets, and the Pimco Total Return ETF (BOND), with $3.5 billion.
The newcomers include the Pimco Diversified Income Exchange-Traded Fund (DI), which invests in global credit markets, and costs 0.85 percent in expense ratio after a fee waiver. The Pimco Low-Duration Exchange Traded Fund (LDUR), focusing on short-term high-quality bonds, costs 0.55 percent a year. Pimco is now the 11th-largest ETF issuer with more than $13.5 billion in U.S.-listed ETF assets.
AdvisorShares launched in January the actively managed AdvisorShares Sage Core Reserves ETF (HOLD), a fixed-income fund that has varying average duration based on the forecast for interest rates. Sage Advisory Services is the portfolio manager. AdvisorShares sponsors 24 ETFs with combined assets of roughly $1.2 billion.
Finally, First Trust rolled out last month three ETFs, two of which are actively managed U.S. large cap equities funds. The First Trust High Income ETF (FTHI) will use options on the S&P 500 index to generate high current income, and capital appreciation, while the First Trust Low Beta Income ETF (FTLB) will rely on an options overlay to generate income and provide downside protection. Each fund costs 0.85 percent a year, or $85 percent $10,000 invested.
Beyond that, Emerging Global Advisors is another issuer that stood out this year when it partnered up with TCW—a well-known fixed-income asset manager—to roll out three emerging-market-centered bond strategies. These funds serve up focused exposure to different pockets of the yield curve, and while they are each are benchmarked to indexes, they rely on the expertise of a major mutual fund firm for advisory.
The EGShares TCW EM Short Term Investment Grade Bond ETF (SEMF), the EGShares TCW EM Intermediate Term Investment Grade Bond ETF (IEMF) and the EGShares TCW EM Long Term Investment Grade Bond ETF (LEMF) each cost 0.65 percent in expense ratio, or $65 per $10,000 invested.