What would happen if the second largest provider of ETFs, best known for low-cost index funds, entered the actively managed ETF market?
It’s a question that asset managers are probably asking since Vanguard in late May updated its filing with the Securities and Exchange Commission to offer actively managed ETFs.
“Just as index-based ETFs expanded access to low-cost Vanguard index funds, we believe we can provide a greater number of investors with low-cost access to our active management expertise through an ETF,” a Vanguard spokeswoman wrote ThinkAdvisor, in response to questions.
She noted that Vanguard already offers actively managed ETFs in the U.K. and Canada and that the firm’s filing to offer similar products in the U.S. “merely signifies a continued dialogue” with regulators about seeking exemptive relief to give the firm flexibility to diversify its U.S. product lineup.
“The Vanguard thing is huge,” said Eric Balchunas, an ETF analyst for Bloomberg Intelligence, at a recent Inside Smart Beta conference in New York City. “This will be the next game changer, Vanguard going into ETFs. The reason why and the most important thing: They will be cheap.”
He noted that fees for Vanguard’s actively managed ETFs launched in London are less than 30 basis points, while the average fee for actively managed ETFs is 81 basis points and, on an asset-weighted basis, 61 basis points. Low-cost actively managed ETFs from Vanguard have the potential to shake up a market when “the expense ratio is the number one thing people look at,” said Balchunas. “This is huge.”
And it could happen this year, according to Todd Rosenbluth, director of ETF and mutual fund research at CFRA.