By Murray Coleman
Lost in all of the news surrounding the parent brokerage house's dramatic fall and subsequent $1.2 billion auction, shares of The Bear Stearns Current Yield Fund (YYY) opened with little fanfare.
The highly anticipated coming-out party for YYY was supposed to take place on March 18. And word that another prominent Bear Stearns executive, Mark Whaley, had left the firm also broke on Tuesday.
At mid-day, Bear Stearns issued a statement acknowledging the start of trading in YYY. That came after repeated calls and emails to the asset manager, which declined to provide further details about the timing of the ETF's launch.
"We are excited to introduce the first actively managed ETF to the market," said Jeff Lane, Bear Stearns Asset Management's chief executive, in the statement.
Since the parent company's fortunes turned so dramatically - a day before YYY's initial scheduled release, shares of Bear Stearns fell almost 50% -- Bear Stearns Asset Management has remained noncommittal about whether the first active ETF would even come to market at all.
It wasn't until later that week a Bear Stearns spokesman confirmed to IndexUniverse that Bear Stearns was pulling the launch and had no future date in mind at the time.
With that backdrop, though, investors eagerly awaiting an active ETF finally have one. And Bear Stearns, despite its travails, beat out a long list of larger industry players rushing into what they hope is gold in fund investing.
A vast majority of mutual fund assets are in actively managed portfolios. Up until now, ETFs have been tied to indexes. Although those benchmarks have been getting more flexible in recent years, they're still a long way from running independently like most mutual funds.
Even though ETFs have outpaced active open-end mutual funds' growth for nine straight years, they still represent a much smaller base of assets. Many industry observers believe that the launch of true active ETFs will open the market up even more to a wider audience of investors.
In short, some are likening the birth of active ETFs to the dawning of a new era in the $568.7 billion industry. They see a time when ETFs, both indexed and active, will compete directly for mainstream investors throughout most of the $11.7 trillion mutual fund marketplace.
The next big shoe to fall in active management of ETFs is likely to come from PowerShares Capital Management. Like Bear Stearns, it has cleared all of its regulatory hurdles for a set of four actively management ETFs.
But unlike Bear Stearns, three of those are stock portfolios and will represent a move by active management for the first time into equity ETFs.
Although the firm isn't saying yet, industry observers are expecting the first actively managed stock ETFs from PowerShares to hit the market sometime in early April.
The PowerShares active ETFs include a short-duration bond fund. Bear Stearns' YYY should prove somewhere between a money market fund and a short-duration bond fund. The most YYY's weighted average maturity will extend to is one year. But its average should be closer to 180 days, according to the ETF's prospectus.
YYY is expected to charge an expense ratio of 0.35%. It doesn't follow an index but will invest in U.S. government and corporate debt with short-term durations.
The PowerShares stock ETFs about to hit the market won't follow indexes, either. The broadest active stock mandate will likely go to the PowerShares Active Mega-Cap Portfolio, which will be subadvised by Invesco, parent of PowerShares and the AIM family of mutual funds.
Instead of following a fixed quantitative screen, the prospectus gives the Active Mega-Cap manager wider discretion to implement a portfolio. The fund will be able to trade at any time and on any day, in contrast to the once-per-week trading of the other PowerShares funds.
It can also theoretically trade as much as it wants. Changes in the portfolio will be reflected in the fund's published holdings on the following day, meaning the disclosed holdings may always be one day stale. In comparison, existing ETFs reveal their holdings daily.
Bear Stearns has a Web site for more information about YYY located here.