Our main story this week centers on Vanguard's recent decision to approach the SEC to offer actively managed ETFs.
While the push is still in its infancy, it represents the degree that ETFs of all types have gained steam. It says something when the historical leader and proponent of indexed, passive investing wants to enter the actively-managed ETF arena.
Vanguard's potential move into active ETFs could be a game changer for the active ETF industry and those that invest in active ETFs, says Christian Magoon, CEO of YieldShares. "Fund companies realize that the structural benefits of ETFs combined with the efficiencies in marketing and distributing them equal an opportunity to boost assets," he says.
More importantly for mutual fund and ETF providers, the mutual fund giant's entry into the actively-managed ETF space - if the SEC grants permission - could mean any active ETFs will be priced at rock bottom rates. "This would put fee pressure on existing and potential active ETF sponsors," Magoon tells me. The numbers speak for themselves. The average expense ratio for Vanguard's active funds is 0.28%. The expense ratio for its index funds and ETFs is 0.15%. (Meanwhile, the Lipper industry average for all active funds was 1.11% as of Dec. 31, 2013.)
"In a lot of ways they are like the Amazon.com of the asset management industry," Magoon says, noting that anytime Vanguard gets into a market their structure and size allow them to put fee pressure on existing players.
Others, however, note that Vanguard's interest in actively-managed ETFs signals their potential entry into a small, but growing active ETF space where there will be more scrutiny on their performance than fees. "We believe their entry into actively managed ETFs is a positive step for the industry, but Vanguard has a lot to do relative to its brand as a passive manager where low fees are the value proposition," says Noah Hamman, CEO of AdvisorShares.
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