Davis Advisors has become a darling of sorts within the exchange-traded fund world after it launched four actively managed equity funds based on the strategies in its mutual funds and other products. The ETFs—three debuted in January 2017 and the other in March 2018—had garnered $679 million in assets by mid-May.

That’s pretty good considering the company’s four products are just a tiny toe print in the overall ETF sandbox of 2,260 U.S.-listed exchange-traded products. Actively managed ETFs are a rare breed in an industry whose massive growth during the past quarter century was fueled by investors’ embrace of low-cost, index-tracking products at the expense of traditional active management. In fact, actively managed ETFs recently contributed just 2% of the $3.9 trillion in overall U.S.-listed ETF assets.

Many large active management shops have been reluctant to enter the equity ETF space because they fear that sophisticated investors will front-run their trades and copy their proprietary strategies if they disclose their holdings daily (as is required of ETFs). Davis Advisors’ decision to put its active strategies into the fully transparent ETF wrapper has won plaudits for the company and made Chris Davis, portfolio manager and son of the company’s founder, a sought-after speaker on the ETF industry conference circuit.

Davis Advisors isn’t the only fund sponsor with active ETFs similar to its existing mutual funds, but from all accounts, it’s a leader in that small category.

But the firm’s first-mover advantage, so to speak, might be in jeopardy now that the Securities and Exchange Commission has approved the ActiveShares structure created by Precidian Funds that enables actively managed ETFs to divulge their portfolio holdings quarterly, the way mutual funds do.

The ActiveShares structure has been licensed by a gaggle of large asset management firms, including BlackRock, Legg Mason, Capital Group, JP Morgan, Nationwide, Gabelli, Columbia, American Century and Nuveen. The expectation is that some or all these firms will someday seek to leverage the ActiveShares structure to create a wider audience for their actively managed investment strategies. If and when that happens (according to industry sources, the first ActiveShares-linked ETFs could appear later this year), it’s fair to ask whether they will steal Davis Advisors’ thunder.

At least one industry analyst believes they probably won’t. “I think it will be a tailwind to Davis because it has faced a challenge in making sure investors understand that these are true actively managed products with no index behind them,” says Todd Rosenbluth, head of ETF and mutual fund research at CFRA. “So they’re fighting an education battle largely among themselves and the small number of other firms offering actively managed ETFs.”

He adds that while more active ETFs in the market will create more competition, they would also grow the overall pie. And if there are more active versions, investors will become more comfortable with them.

Less Is More

First « 1 2 3 » Next