Noah Hamman isn’t about to weigh in on the always-controversial active versus passive debate.
The founder and CEO of Active ETF provider AdvisorShares Investments thinks it’s rather moot, and sets his sights on a bigger target.
“I’m not trying to convince anyone that an active ETF is better than a passive ETF,” he says, when asked to pretend the interviewer is legendary passive investment advocate John Bogle, the Vanguard founder. “I’m instead looking at the $13 trillion in mutual funds, 80% of which are actively managed, and telling them there is a better way.”
He notes that when passive ETFs were introduced, passive strategies could be gotten from many different sources. It was the transparency, liquidity and accessibility that gave them their unique value proposition.
“It’s the same now with active ETFs. You can get active management anywhere, but active ETFs are more liquid, transparent and have a lower cost than comparable products.”
And of course, there’s the product’s tax efficiency, especially when compared with its mutual fund counterpart.
“For these reasons, active ETFs are attracting more assets at this stage of their development than passive ETFs did at the same point in theirs,” he adds.
Hamman points to the number of new products coming available as proof of their popularity, despite recent regulatory hurdles like a moratorium on derivatives.
Hamman knows a little something about the active ETF and alternative investment space. In 2006, he was an equity founding partner of Arrow Investment Advisors, advisor to the Arrow Funds. In the first 24 months of operation, Arrow had $350 million in assets under management and distribution relationships with firms including Merrill Lynch. Before that, Noah was vice president of business development for Rydex Investments.
Giving credence to his active/passive peace plan, Hamman notes that at Rydex, he led the launch of the firm's index-based ETF, commencing with the launch of RSP (Rydex S&P Equal Weight ETF). In addition, he diversified the firm's business and product lines by developing the firm's first buy-and-hold mutual funds.
As for the near-future for active products, Hamman sees a particular type of advisor as the key.
“It will be the fee-based advisors that will drive their growth in large part,” he concludes. “The commission-based people will still go for more of A-share and C-share mutual funds, but for the former, it fits.”
For direct insights on the role of ETFs in client portfolios from multiple experts—including Rick Ferri, Ron Delegge, Skip Schweiss and more—we invite you to register for AdvisorOne’s premiere advisorcentric Virtual ETF Summit, which starts July 23 (and get multiple hours of CFP Board CE).