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Friday, February 17, 2012

Barron's Worries About the Cost of Active ETFs

News summary by MFWire's editors

How do exchange-traded fund expenses measure up when you use an active strategy as opposed to a passive one? Barron's new "Focus on Funds" columnist Brendan Conway says active ETFs' expense ratios may soon resemble those of regular mutual funds.

Conway cites the predictions of Tom Graves, an analyst with S&P Capital IQ. "We think actively managed ETFs are likely, over time, to have a cost structure that is more akin to actively managed mutual funds, including the impact of trading and research-related expenses. We think that some actively managed ETF providers might offer an artificially low expense ratio initially, with the hope of attracting assets. Then, if enough critical mass is reached, a fuller reflection of the ETF’s costs could be better absorbed in the expense ratio borne by investors," said Graves, as quoted by Conway.

Likewise, the analyst predicted that more traditional fund companies may jump in to the ETF-offering bandwagon.

"We think that existing fund companies and new entrants will increasingly be looking at actively managed ETFs to both defend market share and to attract new money," Graves said. 

Edited by: HFD

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