There will be more actively managed and eventually even nontransparent ETFs coming to market in the future, but not every strategy lends itself to that structure.
That’s one of the main takeaways from a panel at the Inside ETFs conference in Hollywood, Florida.
Actively managed ETFs have a better risk profile in less efficient markets but don’t belong in funds focusing on alternatives, said Shana Sissel, portfolio manager at CLS Investments.
They provide more choice for investors, especially for taxable accounts, said Dodd Kittsley, national director at Davis Advisors funds, whose current ETF lineup includes active and passive funds.
But in order for actively managed ETFs to succeed, price will be key — not too expensive for investors but not so cheap that funds cannibalize the funds they already market.
“The dirty little secret” in the mutual fund industry is that “mutual funds are priced too high,” so an actively managed ETF that’s similar to an actively managed fund but with a lower price point would not be palatable to fund companies’ boards, Kittsley said.
If an actively managed ETF can deliver on performance, however, price will be less of an issue, said Noah Hamman, CEO of AdvisorShares, an investment management firm that offers only actively managed ETFs. But Hamman stressed that fund managers must be mindful when they set their price for an actively managed ETF.
Fund companies offering actively managed ETFs should ideally have a strong track record for performance and a high level of active share, and the managers of the actively traded ETF should own shares of the fund, Kittsley said.