At the end of 2010, there are 33 actively-managed ETFs with a combined asset base of close to $3 billion. These products are from seven different issuers, some of whom have been around since the beginning of the Active ETF product launches and others who are relative newbies. Let’s look at how each of those seven issuers has stood up to developments over 2010.
PIMCO: Continued Success and Brand Recognition
PIMCO has stood head and shoulders above many of the other bond players in the Active ETF space for quite a while. PIMCO started off the year with only two actively-managed ETFs – the Enhanced Short Maturity Fund [(NYSEARCA:MINT): 0: 100.66 0.00%] and the Intermediate Municipal Bond Fund [(NYSEARCA:MUNI) :50.45 0.00%]. MINT was one of the largest actively-managed ETFs in the US, matched only by some of the WisdomTree’s active currency ETFs. Since then, the firm has launched two more Active ETFs, one focusing on the short end of the municipal bond market and the other focusing on Build America Bonds. Cumulatively, PIMCO’s four actively-managed ETFs managed in excess of $900 million in assets.
By any account, PIMCO’s foray into the ETF world has been quite a success. Even though it was a late entrant, it has been able to utilize its brand power and reputation in the fixed-income world to good effect. In October, Cogent Research highlighted PIMCO’s ranking in the 2010 Advisor Brandscape report where PIMCO was ranked fourth amongst ETF providers in terms “advisor loyalty”. Providing easy access to PIMCO’s proven management expertise in the bond world through ETFs is a strategy that has really worked in attracting assets both to its passive and actively-managed ETFs.
In the pipeline, PIMCO still has plans to launch a Prime Limited Maturity Fund and a Government Limited Maturity Fund. Most recently, it filed to launch a global inflation-linked bond strategy through an actively-managed ETF. So, PIMCO has definite plans to continue its expansion into Active ETFs and it should continue to find success because it's probably the only “star manager” in the space with such a stellar reputation in its particular area of expertise.
WisdomTree Investments: More True Active Funds and New Asset Classes
WisdomTree launched its first actively-managed currency ETFs just a month after the very first Active ETFs came to market from PowerShares in April 2008. However, most of these initial funds were not regarded by investors as truly active funds as they just provided exposure to interest rates and currencies of particular countries. Despite this though, these funds were able to gather a significant amount of assets as they provided a convenient way for investors to achieve currency exposure. In 2009 and 2010, WisdomTree launched more currency funds that actually had an active investment strategy such as the Dreyfus Emerging Currency Fund [(NYSEARCA:CEW) :22.18 0.00%] and then the Commodity Currency Fund [(NYSEARCA:CCX) :25.636 0.00%]. Both funds are active plays on particular groups of currencies.
WisdomTree started expanding beyond active currency funds into active fixed-income funds with the launch of the Emerging Market Local Debt Fund [(NYSEARCA:ELD) :51.12 0.00%] in August 2010, that focused on provided exposure to emerging market local currency debt through an actively-managed strategy. The fund had a very successful launch and has already gathered in excess of $500 million in assets since. Encouraged by that success, WisdomTree has followed that up with filings for four more active bond ETFs that will focus on Brazil, Asia, Latin America in general and the Europe, Middle East and Africa (EMEA) regions. These will help make WisdomTree’s line up of active bond ETFs more comprehensive. By way of assets, WisdomTree has more than $1.6 billion in assets within actively-managed ETFs, putting it quite far ahead of other players in the Active ETF space. Going by the response that WisdomTree has received for its sole fixed-income fund, it can look forward to strong growth from the other bond funds in the pipeline.
Invesco PowerShares: Wait and Watch
Invesco PowerShares is behind the four oldest actively-managed ETFs in the US, which were launched in April 2008. PowerShares followed that up with the launch of a fifth fund in Nov 2008 but has not expanded its line-up in the next 2 years since then.
With 5 actively-managed ETFs on the market – 3 equity funds, 1 short duration bond fund and 1 real estate focused fund – PowerShares has taken what you could call a “Wait and Watch” approach. They’ve launched these 5 Active ETFs and are waiting to see how investors and the financial industry in general respond to the arrival of actively-managed ETFs. Ed McRedmond, SVP at Invesco PowerShares, has repeatedly mentioned that PowerShares didn’t expect the Active ETF market to take off very quickly but that they still see solid growth for the space, given enough time.
That sort of sentiment has apparently been confirmed by investors when you look at how their five Active ETFs on offer have fared. Their asset growth has been nothing to write home about, with all five funds holdings a total of just above $50 million in assets. The actual active performance of some of the funds relative to their benchmarks has been good, which should bode well for the AER Advisors, the sub-advisor to those funds. PowerShares could also be waiting for their funds to achieve a 3-year track record – which four of their funds will achieve in April 2011 – when they could get a Morningstar rating and after that look to market their products aggressively. There could be some merit to that approach since for all actively-managed funds, the track record is very important to investors.
Grail Advisors: Slow Progress, But Strong Prospects
If you just looked at Grail Advisors’ seven actively-managed ETFs at the beginning of 2010, Grail hasn’t done very well at all. Two of its funds, sub-advised by RiverPark, became the first Active ETFs to be shut down in the US since the Bear Stearns failure took down the very first actively-managed ETF back in 2008. The other five funds have hardly done any better, with all of them languishing below $10 million in assets and only one of them with assets more than $5 million. It’s tough to see how Grail Advisors is making any money on these funds, since the generic break-even number for ETF manufacturers is said to be about $50-$70 million in assets.
However, what’s slightly more encouraging is Grail Advisors’ product development efforts. Grail has an international equity ETF that is has filed for in collaboration with American Beacon and a short duration bond fund with Western Asset. However, the big fish that Grail Advisors captured the headlines for was its collaboration with DoubleLine Capital – the firm started up by ex-TCW bond manager, Jeffery Gundlach. Grail filed for an emerging market fixed-income fund in June that will be managed by DoubleLine. The launch of this fund could be the turning point for Grail because of the “star manager” status that Jeffery Gundlach has.
Grail Advisors had also made the news early in the year when it announced that it was working with some fund companies to convert their existing active mutual funds into actively-managed ETFs. If that comes into fruition, it could be another positive development. Several other firms, Huntington Asset Advisors and Oppenheimer Funds, have already tried to emulate that approach – entering the Active ETF space through mutual fund conversion.
AdvisorShares: Unique Strategies, Aggressive Growth
AdvisorShares has probably been one of the more notable success stories of 2010 in the Active ETF space. AdvisorShares started off the year with only one product on the market, the Dent Tactical ETF [(NASDAQ:DENT) :20.46 0.00%], managed by Harry Dent. The fund went nowhere, with asset hovering between $20-$25 million the entire year.
After the mid-year mark though, AdvisorShares really turned up its product development efforts a few notches. The second half of 2010 saw the launch of 4 actively-managed ETFs, each with a different sub-advisor and each following a very interesting and unique investment strategy that investors typically don’t have access to through ETFs. Investors have shown their support as three out of four of those launches have taken off very well after hitting the market. AdvisorShares launched an ADR focused ETF with WCM Investment Management [(NYSEARCA:AADR) :29.52 0.00%], a global long/short fund with Mars Hill Partners (GRV) :25.10 0.00%], a global tactical fund with Cambria Investment Management [(NYSEARCA:GTAA) :25.46 0.00%] and a high yield fund with Peritus Asset Management [(NYSEARCA:HYLD): 50.35 0.00%]. GRV and GTAA were quickly able to gather round about $50 million in assets, while HYLD being the newest has gathered about $15 million. AADR has been the exception as it only has been able to accumulate about $8 million.
The good thing with AdvisorShares’ launches is that each strategy is being run by managers that have a decent track record in that niche and have some sort of awareness already amongst advisors and retail investors. That has helped the funds take off well after getting listed. AdvisorShares’ pipeline is also exciting with a short-only fund coming to market soon and 5 other actively-managed ETFs filed for in collaboration with two different managers. AdvisorShares’ appeal as a platform for small to mid-sized active managers to launch Active ETFs seems to be catching on well with money managers.
BlackRock iShares: Cautious, But With Growing Plans
BlackRock iShares has only had one actively-managed ETF on the market, the Diversified Alternatives Trust [(NYSEARCA:ALT): 50.8806 0.00%], through 2010. The fund has seen slow but steady accumulation through the year as it had only about $10 million assets in March 2010, but ended the recent week with more than $110 million in assets. ALT tries to achieve absolute returns by employing three different hedge-fund style strategies in the same portfolio.
Other than ALT though, iShares has not brought on any other fund to market. It has been a little surprising that the company has been cautious about the Active ETF space given that it is the undisputed leader of the ETF industry as a whole. Given the amount of distribution power it has and also its link with BlackRock, probably the largest active manager, the potential for iShares in the Active ETF world is quite tremendous.
Only in June did the company file for more conventional active equity and bond ETFs, before which iShares had announced no clear intentions with regards to Active ETFs. The relatively slow move could have to do with some debate on the approach to take as Bloomberg had also reported that the company was seeking approval from the SEC to launch actively-managed ETFs “that would keep some of their assets undisclosed”. So the eventual approach that iShares decides to take will be interesting to see but there is little doubt that as a company, they have tremendous resources to tap on in order to make their entry into Active ETFs a success.
U.S. One – Small Fund, Slow Accumulation
U.S. One was one of the new entrants that launched an actively-managed ETF in 2010. The firm launched One Fund [(NYSEARCA:ONEF) :28.0799 0.00%] that is designed to be a one-stop fund to achieve exposure to global equities with an asset mix that is revised on an annual basis. The company is targeting advisors and investors who prefer to have a very hands-off approach to investing and are just looking for passive exposure.
ONEF is growing slowly but surely, as it closes in on the $10 million mark. U.S. One is planning ahead and has filed plans to launch a similar fund focused on the global fixed-income market that would serve as a one-stop solution for investors wanting bond exposure. It is also planning for a “Global Blend Fund” that would invest in both equities and bonds.
Disclosure: No positions in above-mentioned names.
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