FRC Study: Actively Managed Exchange-Traded Funds-Competitive Threat or Passing Fad?

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September 15, 2009 2:11pm ETF BASIC NEWS

financial-research-corpAn exploration of the future of actively managed ETFs. In early 2008, the first Exchange-Traded Funds (ETFs) possessing the “active” label began to emerge, leading the asset


 management industry to begin assessing the impact this unique structure could have on the marketplace. Since 2000, FRC has closely monitored the ETF market, recognizing that this product had the capacity to change industry dynamics going forward. In its latest study on the ETF market, FRC teams with ETF expert Gus Fleites to explore the future of actively managed ETFs, the next frontier in the continuing evolution of ETFs.

In this study, titled Actively Managed ETFs: Competitive Threat or Passing Fad?, Financial Research Corporation:

  • Track the evolution of the ETF structure, from the launch of SPDR in 1993 to the introduction of the first active
    ETFs in 2008, highlighting specific milestones in the product’s development.
  • Evaluate the competitive advantages of the ETF structure over open-end mutual funds and other investment
    products in the delivery of active management strategies.
  • Identify the roadblocks ETFs still face in their evolution toward true active management, including the need for
    transparency, regulatory delays, and the ability to attract market makers.
  • Discuss the factors that firms considering the build out of an actively managed ETF business must address,
    including regulatory, operational, and trading considerations, as well as potential distribution opportunities.

For more information on this report, contact FRC today at or e-mail [email protected].

 
About Financial Research Corporation
Financial Research Corporation (FRC) provides the knowledge to build stronger relationships through product development and management, distribution solutions, and marketing strategies. For more than 20 years, our insightful research and consulting services have been assisting marketing, product development, and strategic planning professionals in the creation of innovative products and services. Based in Boston, FRC is at the forefront of assisting its clients to comprehend and respond to the rapid changes occurring in the manufacture and distribution of investment products. Our more than 200 clients include the world’s leading asset managers and distributors. For more information, visit the FRC Website at www.frcnet.com.

Financial Research Corporation
One Faneuil Hall, 3rd Floor
Boston, MA 02109
(866) 532-8009
[email protected]
www.frcnet.com

 

METHODOLOGY

The launch of the first actively managed ETF products in 2008 represented the “first stake in the ground” for this evolving product concept. Recognizing that interest in these emerging vehicles was growing both inside and outside of the ETF marketplace, FRC partnered with Gus Fleites, an ETF industry veteran, to explore how actively managed ETFs would continue to evolve, as well as how they could impact other actively managed investment vehicles. The study begins by providing a brief history of the growth of ETFs and the unique structure and processes behind ETFs. After laying this foundation, we address how the ETF structure can be applied to active management, as well as the roadblocks active ETFs will continue to face in their pursuit of widespread marketplace acceptance. Finally, we look at key questions firms exploring entrance into the active ETF business must consider, including product development issues and distribution opportunities.

The research used to complete this study came
from four sources:
• Knowledge and inside understanding of the ETF business of Gus Fleites, who was responsible for the development and introduction of more than 40 ETFs across the globe while working for SSgA and ProShares
• FRC’s proprietary database of ETF sales and assets
• Survey of 15 asset management firms regarding their opinions on active ETFs and the impact they will have on the mutual fund industry
• Secondary sources, including news articles and websites related to ETFs

This study on the ETF marketplace—FRC’s third since 2000—is designed to serve as a tool for asset management firms exploring the opportunities in active ETFs, as well as those seeking to understand the level of competition these emerging vehicles will present to actively managed mutual funds in the years ahead.

 

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