Active ETFs respond to generational shift

13-Mar-2017

By Daniel Paperny

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The emergence of actively managed exchange traded funds (ETFs) shows the industry is maturing as fund managers hunt for strategies to entice generation X and Y investors, says Deutsche Group co-head of program trading in Asia Pacific and co-head of cash execution in Australia David Foodey.

Speaking at the recent S&P Dow Jones Indices Australian ETF Masterclass in Sydney, Foodey said the retail appeal of passive ETFs was their low-cost, “very efficient and very easy” way to get beta exposure and a diversified portfolio of holdings.

But as many investors became more self-directed , active ETF offerings were emerging.

“We think active ETFs are currently the ‘Uber moment’ for funds management in the sense that they’re really pitched at your Gen Y and Gen X [investors] who want to sit with an iPhone [tracking their portfolio] intra-day rather than filling out a PDS [product disclosure statement] and transferring cash,” Foodey said.

“The real question is whether you [believe] that active ETF or fund can outperform the market, and that’s a decision that you have to make.”

But Susquehanna International Group portfolio manager Brett Lesh questioned whether active ETFs were more competitive and suitable than their passively managed counterparts for retail investors.

He said while active ETFs provided investors with more direct access to investing in asset classes like international equities, the jury was still out on whether they would be viable in terms of their long-term performance against passive offerings.

“I think of those differently from an ETF, because some of them you can’t make margins on if you don’t know what’s in a fund and a lot of them are less transparent,” he said.

“I guess what Australia’s outlook on active ETFs so far is that there’s less transparency and possibly different information given to different participants.

“If you look at the spreads on those and the fees they charge, I don’t think they’re competitive versus passive ones, personally, but as a way to find funds, it’s probably a good mechanism to do that as opposed to pulling out the paperwork.”

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