Active ETFs and You

John Baker, a securities lawyer with Stradley, Ronon, Stevens and Young in Washington, says the fact that the SEC is seeking comments “is definitely a step to allowing actively managed ETFs.”

All of the ETFs created thus far have been index funds, and therefore have transparent holdings. But with actively managed ETFs, Baker says, the question becomes, ” ‘how can you have that transparency?’ In this case, transparency is essential for the [actively managed ETF] to work at all.”

Baker says the type of investor most likely to use an actively managed ETF is a short-term trader. He says this type of investor “wants to be invested but also wants an effective exit strategy. And essentially there’s no better exit strategy than owning an ETF because you can sell it anytime. You have to wait for T+3 to get your money, but you can immediately sell. It’s not free to sell it like a mutual fund, but it’s pretty economic, you only have to pay a small fee for the trade.”