Actively managed ETFs are more and more of a buzzword among fund companies and ETF providers, yet these products are - perhaps surprisingly, given the attention they receive - still in their infancy.

Out of a total universe of 1,366 ETFs, the asset management industry has launched only 84 actively managed ETFs, according to Morningstar.

Noah Hamman, CEO of AdvisorShares, talks with Money Management Executive about the drivers of these products, the roadblocks active ETFs are encountering and other factors influencing fund flows more broadly.

Q: While active strategies are gaining in popularity, they're still a small slice of the ETF world. Are active ETFs really taking off?

Yes, I see two things driving active ETFs. First, active ETF approval from the SEC came approximately 15 years after the first index ETF launch, so the biggest growth years for active ETFs are yet to come. Second, index strategies are a saturated market as all of the traditional indexes are already offered in an ETF. Active ETFs will allow for a much larger opportunity for active managers who are able to demonstrate their ability to provide better risk adjusted returns in a liquid, transparent investment.

Q: The stats, however, show that active ETFs represent about 1% of the overall ETF market. Are they truly gaining in popularity?

Yes, I think you have to look at it in perspective. Index ETFs have been out since 1993, so just over 20 years, and active ETFs have only been out for about six years. If you compare the number of ETF and assets for active ETFs today, and go back and compare that to the first six years of index ETFs, you will see that active ETFs are growing as fast if not faster than index ETFs did in their first six years.

Q: How are providers responding to the active ETF movement?

Right now, there seems to be a lot of waiting on the sidelines. Many have filed for exemptive relief, but not many have been aggressive about pursuing a more efficient structure. Some providers are waiting to see if non-transparent actively managed ETFs are approved by the SEC, but it's unclear if or when that will happen. Eventually, similar to Vanguard, as newer asset managers see success in active ETFs, I would expect them to more aggressively pursue offering their investment management expertise in an active ETF structure.

Q: What are the most popular types of ETFs right now?

I feel that the most popular ETFs actually span the entire space, particularly core strategies (such as domestic and international equity; domestic and global bond).

Q: Vanguard appears to be slowly overtaking State Street in terms of flows to ETFs. How does distribution/marketing come into play?

I think this is about the convergence of investor and advisor education and their growing comfort with ETFS, and a firm with the biggest index brand on the planet. Today, when an advisor who has historically used mutual funds, gets educated and comfortable enough to use ETFs in their practice, they look at the landscape of options and it's Vanguards brand they recognize from their prior use of mutual funds which helps provide that comfort to use Vanguard in that allocation.

Q: RIAs' use of ETF products rose 27% annually over the past five years, and accounted for $170 billion of the channel's total assets as of Dec. 31, 2012, according to a February study by Cerulli Associates. How is that relationship with RIAs impacting ETF distribution and marketing?

I think it will impact it in a positive way, but keep in mind that in many ways, how an ETF distributes to an RIA is not all that different from how a mutual fund distributes an RIA. Being fee-based, RIAs traditionally use no-load or institutional class mutual fund shares, and those are the exact type of mutual fund classes that compete against ETFs. I expect that ETF sponsors will approach RIAs in similar fashion as mutual fund sponsors. With the transparency and structural efficiency that ETFs offer over mutual funds, and with the growth of more choices with actively managed ETFs, we expect the RIA usage of ETFs to significantly grow.

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