Unlocking Real Value Blog

Will Active ETFs Woo Non-Indexers?

Published in Ignites – An Information Service of Money-Media, a Financial Times Company
Written by Andy Klausner, CIMA, CIS, the founder of AK Advisory Partners LLC., a strategic consultancy serving the wealth management industry.

I believe active ETFs will likely have an advantage in attracting more interest to passive strategies in the intermediary market as opposed to the direct investor space. Consider how advisors are making decisions for clients, either on a discretionary or non-discretionary basis, on which traditional equity or fixed-income mutual fund meets their needs. It’s very logical that an advisor would see benefits in an active ETF with cost advantages when compared to mutual funds, particularly if the advisor’s overall investment preference is for low-cost products and active management. The proliferation of sector- and commodity-specific ETFs at significantly lower costs than comparable mutual funds (when available) also bodes well for the continued growth in ETFs.

However, for many investors that go it themselves, I don’t think they know or understand the difference between active and passive ETFs. They view ETFs as a way to invest in the “market” and ETFs allow investments into specific sectors and commodities (for example, gold). ETFs are an alternative to mutual funds that allow for trading throughout the day as opposed to at NAV only once a day. I think this segment of the market has increased itsparticipation in this segment of the market and will continue to do so. This will be especiallythe case as firms such as Charles Schwab and others decrease the cost of trading. I am not sure that active v. passive is an issue for this group.

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