While active management has long been a big part of the mutual fund business, it is still a tiny part of the ETF business. But that is changing.
Jeff Gundlach did well last year with his actively managed bond fund. AdvisorShares, which runs several active management strategies that mimic a slew of different strategies, has not fared so well.
But this year, more active management will be coming, and in a different format. Eaton Vance will be coming with a “nontransparent” active ETF, that is, the investors will not know what the fund is investing in until many months later.
Wasn’t that an advantage of ETFs, that you always knew what the fund was holding? I think so, but apparently the industry — most of which come from the mutual fund business — believe there is a market for this.
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Personally, I think more active management is confusing for ETF investors, and for registered investment advisers who invest client money in ETFs.
Why does active management persist, despite the growing popularity of passive investments that track indices? Because: 1) there is a huge industry that insists they are smarter than the market; and 2) there’s more money in it than passive management.
The only good news is that active management ETFs will drive down the cost of active management. Whether that justifies the mediocre returns that active management has posted is another question.