At this week’s Financial News conference on “Investing in ETFs” John Godden, head of London-based hedge fund advisor IGS Group, spoke of the convergence of the hedge fund and ETF industries. This may seem strange at first sight, since the two types of fund sit at opposite extremes. 

One type of fund structure is associated with manager skill, performance fees, opaqueness and illiquidity. ETFs, by comparison, offer a purely formulaic approach, ease of trading and transparency, as well as cheapness.

In fact hedge funds and ETFs have long gone together, though in a slightly different way. ETFs’ flexibility has endeared them to the managers of long-short portfolios, not least because of their historical exemption from the “up-tick” restriction on shorting individual stocks in the US, which reigned from 1938 to 2007, and may yet be reintroduced.

But a number of recent news stories suggest that the two worlds may be combining in a more fundamental way. From db x-trackers’ recent launch of a European-listed ETF investing in hedge funds, to IndexIQ’s hedge fund replicator range, product developers are already hard at work on combining the two types of fund. 

Then, if one considers the hedge fund/ETF marriage more broadly, as a merger of active and passive trading vehicles, then Barclays’ recent filing to launch actively-managed ETFs under the iShares banner, reported by Murray Coleman earlier this week, must be seen in the same category.

Finally, today’s reported interest of Blackrock, the leading active US-based fund manager, in buying Barclays Global Investors, the world leader in passively-managed funds, takes the convergence theme to a new level.

Full Story:  http://www.indexuniverse.com/component/content/article/49-blog-iueu/5839.html?Itemid=19

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