Oppenheimer Considers Active ETF Space, Mutual Fund Conversion Possibility

As reported by InvestmentNews, OppenheimerFunds is contemplating entering the actively-managed ETF space by converting existing mutual funds into Active ETFs. William Glavin, President and CEO of Oppenheimer, spoke at the Money Management Institute’s conference in New York last week.

Glavin said that Oppenheimer has been considering the Active ETF space for a long time and if they do go down the conversion path, they wouldn’t just be launching clone versions of their existing 65 funds. The SEC has not yet approved any previous applications for mutual fund conversion into ETFs. The benefit of converting active mutual funds into Active ETFs is that the track record of the mutual fund can get carried over to the Active ETF, provided that the investment strategy remains largely similar. Also, the ETF would achieve instant scale if the legacy mutual fund already had a substantial asset base as those assets would get rolled over into the Active ETF. These two points could serve as big advantages for issuers who go down this route because one of the biggest issues holding investors from being comfortable with Active ETFs is the absence of a long performance history. The oldest actively-managed ETFs have only been around for about 2.5 years and many have also found it hard to achieve scale as investor assets have only trickled in. Mutual fund conversion could potentially side-step both those issues, thereby giving the issuers a strong advantage over competitors in the space.

The topic of mutual fund conversion into actively-managed ETFs has been raised only intermittently. It was first mentioned by Grail Advisors’ CEO, Bill Thomas, who discussed with us the benefits of conversion in an interview back in May. Then in June, Huntington Asset Advisors became the first company to file for the launch of actively-managed ETFs that two of its existing mutual funds would roll into. Randy Bateman, President of Huntington Asset Advisors, spoke with us as well on the subject, describing his firm’s plans in detail. Since then, Oppenheimer has been the first to discuss mutual fund conversion plans.

Glavin also said that it could address the transparency concerns raised from the holdings disclosure required in Active ETFs by launching products in broad markets such as large-cap growth equities, where managers can complete position changes within a day easily. “But in an emerging markets fund, it can take 30 days to unwind a trade, and if we have to disclose that trade on Day One, we can’t do it”, added Glavin.

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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