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January 28, 2015 at 09:10 AM
It would seem that many mutual fund managers are suffering from FOMO: A fear of missing out on the rapid growth of exchange-traded fund assets.
According to the January issue of The Cerulli Edge — U.S. Monthly Product Trends, asset managers are seeking a variety of approaches to offer ETF products.
“With the U.S. ETF market breaching the $2 trillion mark in December 2014, nearly double the asset size from four years ago, it comes as no surprise that mutual fund managers are exploring ETFs,” the report states.
The Cerulli data shows that firms are actively pursuing ways to enhance their product vehicle lineups with ETFs — with nearly 62% of ETF sponsors stating that they are currently looking to develop active ETF funds and almost 54% stating they are in the process of developing strategic beta ETFs.
To do this, some managers are using their firm’s existing infrastructure capabilities to offer similar strategies in an ETF while others are acquiring an existing ETF boutique that has the distribution already in place.
“Methods managers are taking include seeking approval from the [Securities and Exchange Commission] on nontransparent active ETF structures, launching active ETFs that mirror existing mutual fund strategies, or developing new strategic beta ETFs to enhance existing product offerings,” the report states. “It is clear that no firm wants to be left behind in the product shift to the rapidly growing vehicle.”
The report points to American Funds — which Cerrulli calls “the poster-child active mutual fund manager” — as a prime example of this. In late July, the firm filed an exemptive relief filing with the SEC for both active and non-transparent active ETFs using Precidian Investments’ blind-trust structure, which shows that even the largest of active managers are no longer sitting on the sidelines.
Other firms, like J.P. Morgan Asset Management, are taking a different approach to ETFs — through passive “strategic beta” strategies.
The two ETFs J.P. Morgan launched in 2014, which are not a clone of any of J.P. Morgan’s active strategies, accumulated close to $60 million in assets by year end, Cerulli says.
“J.P.Morgan may be the first in a trend of asset managers to launch multi-factor passive strategies to complement their existing active mutual fund business,” Cerulli states.
