While far from becoming a household name, actively-managed ETFs are gaining more and more attention – both from people who think it’s the next big thing and those who think it’s a passing fad.

Sheryl Nance-Nash came out with a piece on Daily Finance, asking the perennial million dollar question – are Active ETFs the next big thing or the next big bust? In the few years that they have been around in the US since April 2008, actively-managed ETFs have been able to gather about $2.4 billion in investor assets which is only about one-third of a percent of the US ETF market. Yes, it has only been a short 2.5 years since their launch but some of the other newly launched ETFs have gained significantly more traction than Active ETFs have.

Nance-Nash confirms that this lack of traction cannot be attributed to poor performance as Active ETFs have performed decently, marginally outperforming their index counterparts on average. The more important factors that do play a part seem to be the transparency requirements and the lack of a significant track record for most of these active funds. Another article from InvestmentNews by Liz Skinner built on the latter point, quoting Ed McRedmond – SVP at Invesco PowerShares, the company behind the longest running Active ETFs in the US, who said, “We always expected actively managed ETFs would grow slower than index-based ETFs. They didn’t have a track record and there were no historical returns for such a product”. McRedmond had echoed similar views in his wide-ranging interview with ActiveETFs | InFocus . So clearly this hasn’t come as a surprise to the manufacturers of Active ETFs.

With most active fund managers reluctant to provide the level of holdings disclosure that the SEC requires of actively-managed ETFs and most investors interested actively-managed ETFs waiting for a proven performance history, these two factors have become significant hurdles for the space. However, both McRedmond and Scott Burns, Head of ETF Research at Morningstar, believe that there could be a “wave of adoption” once these funds achieve a 3-year track record and receive Morningstar ratings.

As Tom Lydon, Editor at ETF Trends, concluded when talking to DailyFinance, it is too early to make a final call on where the Active ETF space is heading. That is the conclusion that most keen observers of the space reach as well. It is still early days especially since many big players wanting to enter the industry are still standing on the fringes, waiting for SEC approval of their products. Even if a few of the giants like Legg Mason, Eaton Vance or JP Morgan make it into the market, that’ll change the prospects of the Active ETF space drastically.
 

Written By Shishir Nigam from ActiveETFs | InFocus  Disclosure: No positions in above-mentioned names.

Shishir Nigam is the founder of ActiveETFs | InFocus (http://www.etfshub.com/), which provides extensive coverage and analysis of actively-managed ETFs in US and Canada, including debates on major industry trends, insights on the latest product launches from issuers in the Active ETF space as well as in-depth interviews with industry executives and thought leaders.

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