Better Suited To Fixed Income?
The largest equity-focused ETF is the First Trust North American Energy Infrastructure Fund (EMLP), with around $1.33 billion in assets. The fund carries a 0.95 percent expense ratio. Most other equity-focused active ETFs have struggled to gain traction, though their fixed-income counterparts are faring better, Fixed-income active ETFs account for 72 percent of the category’s assets, according to ETFGI.
For these funds, transparency isn’t really a concern. “Even if I broadcast what bonds I am trading on a daily basis, other investors are unlikely to follow my moves,” says Morningstar’s Bryan.
Pimco has established early dominance in this category with $7.65 billion in active ETF assets, according to ETFGI, led by the PIMCO Enhanced Short Maturity Active Exchange-Traded Fund (MINT), which carries a 0.57 percent expense ratio. The Pimco Total Return ETF (BOND), which carries a 0.36 percent expense ratio, is the active ETF counterpart to that firm’s PIMCO Total Return Fund Institutional Class (PTTRX) mutual fund, and is another top fund in terms of assets.
The SEC’s decision to streamline the approval process for new active ETFs may open the door for regulatory relief from transparency issues as well. The fund industry continues to lobby vigorously to make that happen. Yet even as active ETFs may emerge as a faster-growing category, investors should remain cognizant of their drawbacks regarding transparency, manager performance and costs relative to passive ETFs.