How The Active ETF Asset Class Mix Has Evolved (ELD, MINT, CYB, CCX, GRV, GTAA, ALT)

For most of 2010, the large majority of assets in the Active ETF space were to be found in currency funds, all of which are run by WisdomTree Investments. As the chart below shows, as of July 31, 2010, there were 28 actively-managed ETFs in the US with $1.8 billion in assets, 66% of were in currency ETFs. 23% of the assets were in fixed-income funds, a measly 5% in equity funds and the remaining 6% in multi-asset class funds that invested across asset classes. It’s interesting to see how the asset mix within Active ETFs has evolved in the months since.

The chart below shows the same break-up as of Dec 31, 2010 and it paints a somewhat different picture. The number of actively-managed ETFs has increased to 33 and they cumulatively manage more than $3 billion in assets now.

Active Fixed-Income ETFs Gather Share

The most noticeable change is, of course, in the share of the pie that fixed-income occupies. The fixed-income share within Active ETFs has increased to 50% from 23%, at the cost of currency ETFs. In absolute terms, fixed-income assets managed within actively-managed ETFs has gone up from $414 million in July to almost $1.5 billion at the end of 2010.

Part of the reasoning behind this could well be the unprecedented demand for fixed-income funds that has been seen from investors, something that has prompted observers to claim a bubble in bonds. However, due to how young the Active ETF space is, most of this growth has really come from the launch of new and successful active bond ETFs. One of the biggest contributors to this rise was WisdomTree’s Emerging Market Local Debt Fund (NYSE:ELD) that was launched in August and had already gathered $567 million in assets by the end of Dec. The other large gain in fixed-income share resulted from growth in PIMCO’s Enhanced Short Maturity Fund (NYSE:MINT) which increased its asset base from $333 million in July to $785 million in Dec. The asset base of MINT is quite volatile though, and is usually inversely correlated to the equity markets, since most investors use the fund as a money-market alternative.

Stagnation In Equity ETFs, Decline In Currency ETFs

Over that time frame, both actively-managed equity ETFs and currency ETFs have seen difficulty in growing their market share in the Active ETF space. Assets in currency funds have actually shrunk marginally over the period. This isn’t surprising given their niche appeal and relative lack of investors seeking out exclusive currency exposure. The largest currency fund is the Dreyfus Chinese Yuan Fund (NYSE:CYB), which had about $640 million in assets. All of the currency funds are from WisdomTree and they have only launched one new active currency ETF over this time, the Dreyfus Commodity Currency Fund (NYSE:CCX). WisdomTree itself seems to be focusing more on the launching more active fixed-income funds, if its product pipeline is any indication, especially given the amount of success that ELD has seen.

Active equity ETFs have been able to hold on to their 4-5% share only because assets within those funds have grown somewhat proportionately. The absolute amount of assets though is nothing to gloat about, as active equity ETFs only managed about $123 million. These funds have continued to struggle in gaining traction amongst investors. This could be largely because the equity strategies currently available don’t really offer investors anything unique and represent the same value/growth type strategies that thousands of other mutual funds already provide. Also, most of the equity focused ETFs are from Grail Advisors, an issuer that is having financial difficulties of its own. AdvisorShares saw some success by bringing a somewhat more innovative relative value strategy through the Mars Hill Global Relative Value ETF (NYSE:GRV). GRV’s asset growth has also stagnated though. Other than that, there hasn’t been anything in the equity space that has remotely interested investors.

Pockets Of Growth?

Aside from strong growth in fixed-income funds, the other bright spot in the Active ETF space has been the success of some unique strategies that have been brought to market. These are the tactical strategies followed by funds like AdvisorShares’ Cambria Global Tactical ETF (NYSE:GTAA) that invest across asset classes to capitalize on various opportunities. There are also the hedge-fund like strategies followed by the likes of iShares’ Diversified Alternatives Trust (NYSE:ALT) that has seen some of the most consistent growth in assets within the Active ETF landscape. The key is that both these funds, and others like them, offer investors something innovative and unique, strategies that they might not have had easy access to previously. New issuers and some of the existing ones as well, would do well to take a cue from the success of these funds.

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

Shishir Nigam is the founder of ActiveETFs | InFocus (, 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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