SEC's New Rule May Boost Active ETFs

Includes: ARKW, SYE, SYG, USDU
by: Zacks Funds

The Securities and Exchange Commission's (SEC) approval of petitions from two major U.S. exchanges related to active managed ETFs - in which fund managers can change the holdings at their discretion - was perhaps one of the biggest ETF stories last week. Two exchanges - Bats Global Markets and the New York Stock Exchange - received approval to adopt generic listing standards for actively managed ETFs.

Although the SEC retains the authority to approve new actively managed ETFs, the funds could skip to a separate process and gain approval faster than ever before. In order to qualify for the new process, sponsors would need to structure their ETFs according to a template that would fit certain characteristics, such as, limited use of over-the-counter derivatives.

This is in stark contrast to the current approach regarding approval of actively managed ETFs which involve an evaluation of these ETFs on a case-by-case basis. Such a method is both time consuming and expensive.

The new rule will enable sponsors to judge the chances of approval better and bring new ETFs to the market in weeks instead of months. This rule is particularly expected to benefit small sponsors.

The ETF industry is witnessing phenomenal growth this year with assets invested under global ETFs/ETPs touching a record high of $3.177 trillion in June. As per data from ETFGI's June 2016 global ETF and ETP industry insights report, inflows were witnessed across the globe with record levels of assets being gathered in Japan ($147.67 billion) and Canada ($79.14 billion).

ETFs/ETPs listed in the U.S. also witnessed an encouraging trend. Assets under management reached a new high of $2.256 trillion at the end of June 2016. However, Active ETFs represent a meager portion of the pie with just about $26 billion in assets, according to Morningstar Inc.

Since PowerShares launched its first active ETFs in 2008, the number of such funds has grown to 154 in 2016 as other issuers including AdvisorShares, First Trust, Russell and Columbia, have jumped into the space. Currently, active ETFs target equity, bond, currency, real estate and alternative assets among others.

Some of the active ETFs are WisdomTree Bloomberg U.S. Dollar Bullish Fund (NYSEARCA:USDU), ARK Web x.0 ETF (NYSEARCA:ARKW), SPDR MFS Systematic Core Equity ETF (NYSEARCA:SYE), Columbia Large Cap Growth ETF and SPDR MFS Systematic Growth Equity ETF (NYSEARCA:SYG).

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