Actively Managed Stock ETFs May Be Able To Do Something Their Mutual Fund Counterparts Rarely Can: Outperform The Benchmarks

Wednesday, January 16, 2013 07:56
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Actively Managed Stock ETFs May Be Able To Do Something Their Mutual Fund Counterparts Rarely Can: Outperform The Benchmarks

Tags: active management | ETFs | stocks

The popularity of actively managed stock funds waned during 2012 as investors sought shelter in bond mutual funds but the advent of actively managed equity exchange-traded funds (ETF)s could steer the industry back toward stock-pickers.
 
T. Rowe Price Group Inc. is the latest in a string of fund firms to gain SEC approval to launch actively-managed ETFs.

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Although most of the plans for actively managed funds focus on bonds, Columbia Management Investment Advisors has filed for actively-managed stock ETFs.
 
If one company is doing it, you can be sure others will follow and for good reason.
 
Investors have fled actively managed stock mutual funds for the last seven years. The last time equity mutual funds had positive net inflows was 2005.
 
Investors pulled a record $134 billion from them in 2012, beating the then record $132 billion in 2008 when the average large cap stock lost 40%, 3 points worse than the S&P 500.
 
As well, the average large cap stock mutual fund has an expense ratio of 120 basis points. Many large cap ETFs, on the other hand, charge less than 10 basis points. Keep in mind, we’re still talking about passive management.
 
But companies like PIMCO who are planning to launch active ETFs are also trying to keep fees low, somewhere around an average of 80 basis points.
 
If actively managed stock mutual funds had fees at that level, they might have outperformed the S&P last year.
 
That makes the possibilities for low-fee actively managed stock ETFs attractive, indeed.

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