Barclays Wealth jumped into the active exchange-traded fund pool this month, launching a family of eight actively managed ETFs geared toward high-net-worth investors.
The Barclays Wealth ETF Tactical Allocation BETA Portfolios are designed for investors with at least $10 million in investable assets who are looking to open smaller actively managed accounts for, say, a trust, the firm says.
The funds, which launched Oct. 1, will implement recommendations from the Barclays’ Global Investment Strategy Group, led by its head of investment strategy, Aaron Gurwitz. Barclays Wealth, the wealth management arm of Barclays Bank, first launched a similar family of funds in the United Kingdom last year, where they have picked up moderate speed.
Active ETFs were the newest innovation to hit the burgeoning ETF space last year, as investors took a second look at the traditional buy-and-hold model. But despite significant product development, the space has been slow to take off. The 31 actively managed ETFs now trading on the open market held only $470.3 million in assets as of Oct. 8, representing a miniscule .07% of the overall ETF industry.
Though these products are touted as offering all the benefits of a traditional ETF—low cost, transparency and liquidity—active management makes it difficult for investors to see such advantages. In addition to the fees inherent to active management, active ETFs also deviate from their underlying indexes using complex instruments such as futures contracts, swaps or derivative contracts. That makes transparency difficult. Their transparency is further muddled as ETF managers must post their holdings and performance on the fund’s website each day.
“The difficulty with true active management is when you have real investment insight like that, you don’t want to tip the market on those insights,” as someone could front-run your trades, explains Sue Thompson, national sales manager of the registered investment advisor team for the U.S. iShares Business.
Many in the industry have also blamed the slow growth of these products’ market on its lack of a value proposition. Investors have been gaining access to active management through mutual funds for years so, they are unsure of the advantages of actively managed ETFs.
Still, many in the industry are reluctant to count out actively managed ETFs, insisting they could make a significant splash in the quickly expanding ETF market if they do begin to gain significant assets.