Actively Managed ETFs Beckon Managers

Chidem Kurdas

Will hedge fund managers run exchange-traded funds? That question arises as ETFs spread to a variety of strategies and demonstrate growth potential. Total assets are at $793 billion after a net inflow of $105.4 billion in the past 12 months, according to Morningstar.

ETFs are migrating to active management, says Sue Thompson, managing director at iShares, one of the largest ETF providers. To what extent this takes assets away from mutual funds is uncertain. There is a move to active ETFs but you don’t see people leaving mutual funds so much, said Peter Crawford, senior vice president at Charles Schwab & Co., at a briefing organized by Schwab.

For hedge fund managers, ETFs have a major drawback.  They require a high level of transparency. Long/short strategies can be put in ETF form and most fixed income ETFs look more like active funds, says Ben Fulton, managing director at Invesco PowerShares. But it’s hard for equities, he finds: managers don’t want to disclose their holdings at the end of the day.

It is not just a matter of active management. Index-based ETFs are moving into alternative strategies that go beyond commodity index vehicles and gold shares.

JP Morgan Chase offers one based on the Alerian energy master limited partnership index. Alerian founder Gabriel Hammond is a former Goldman Sachs energy analyst and hedge fund manager. This year Alerian spun off its asset management arm, headed by Mr. Hammond, as SteelPath Capital.

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