What’s Up With All The 40-APP Filings?

November 23, 2010

Don’t hold your breath for the storied mutual fund firms that have filed to offer exchange-traded funds to actually launch ETFs.


A slew of filings in the past year by well-known mutual fund firms asking permission from regulators to launch exchange-traded funds may create the impression that these companies are dying to get into the ETF business. Don’t be fooled.

Many ETF industry sources say these firms are taking “just in case” measures. If ETFs continue poaching market share from mutual funds, then Janus, Dreyfus, Alliance Bernstein, Legg Mason, T. Rowe Price, Eaton Vance, Neuberger Berman and other firms that have filed papers with the SEC want to be ready to move quickly into the market. Call it a “if you can’t beat them, join them” type of choice.

“They filed as a defensive measure,” said Richard Keary, president of Global ETF Advisors LLC, a New York-based firm that helps clients bring exchange-traded products to market. “If their active funds continue to see major outflows because of ETFs, they want to be able to quickly react and get into the ETF business.”

Mutual fund companies are a long way from being forced into such a choice. At the end of last year, $11.2 trillion was invested in U.S. mutual funds, according to the Investment Company Institute. That compares with almost $960 billion in U.S. ETFs today, according to data compiled by IndexUniverse.com.

Active Not Passive

One sign that many of these firms are not ready to roll out ETFs is that they are filing to offer actively managed funds. Active ETFs represent an easier transition into the ETF business because they have similarities to active mutual funds.

“We look upon active ETFs as a way to complement rather than compete with our mutual fund manager business here,” John Meyers, a spokesman at New York-based Alliance Bernstein, said in a telephone interview. Alliance Bernstein filed papers with the Securities and Exchange Commission in July.

Still, the vast majority of ETF assets are in passive, indexed funds. About 28 actively managed ETFs are on the market today, out of more than 1,000 U.S. ETFs, and those 28 active funds have garnered just shy of $2.3 billion in assets, according to data compiled by IndexUniverse.com.

Most of those assets are tied to fixed-income funds or alternative asset classes, notably currencies. The current No. 1 active fund is the Pimco Enhanced Short Maturity Strategy ETF (NYSEArca: MINT), a money market proxy that has attracted $688.3 million in part because of the turmoil in global financial markets. The No. 2 fund is the WisdomTree Dreyfus Chinese Yuan ETF (NYSEArca: CYB), which has gathered $667.2 million, a reflection of interest in China’s booming economy.

Actively managed equity funds have meanwhile gathered just $214 million in assets.

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