Actively Managed Exchange-Traded Funds

Abstract

ETF assets have steadily grown worldwide from $310 billion in 2004 to $815.2 billion as of March 31, 2010, gathering over $100 billion in each of the last three years, which included the upheaval of 2008 and early 2009. In the United States, ETF assets grew at a compound annual growth rate of over 30% from 2000 to 2009. This growth has attracted start-up managers who are launching niche ETFs, as well as some of the industry’s most well-known managers with significant assets under management, who are incorporating ETFs into their diverse product lineups. ETFs also have a history of product innovation, and this article explores the latest innovation: actively managed ETFs. The article outlines the key features of ETFs, describes the current ETF classifications, addresses whether a mutual fund can convert to an ETF, discusses the active ETFs currently available, and analyzes the impediments to widespread adoption of active ETFs.

TOPICS: Exchange-traded funds and applications, passive strategies, portfolio theory