ETF Market Developments

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Watching ETF markets develop is interesting. Two recent articles are caught my eye. The most recent,, addresses the rise of actively managed mutual funds as buyers of ETFs, citing hundreds of actively managed funds and 21 of the 25 largest fund complexes as holders. Reasons, they say, vary from parking new money to niche positions in allocation funds to core positions in some allocation funds to core positions in target date funds. I still wonder, despite protestations otherwise, just how embedded ETFs impact the cost structure for the holder of the actively managed fund. No doubt there are good reasons for these moves, parking funds and cost competitiveness against actively managed funds in a fund of funds scenario amongst them, but what about the cost?

The second article,, adds another compelling argument for why actively managed funds might be interested in targeted ETF investments. They talk about how low volatility ETFs tend to outperform high volatility over the long term. Yes, I and they acknowledge that cherry picking time frames can make all the difference, and I encourage the skeptics to go there and dig deeper. I bring it up here because I think it is a good illustration of how a particular ETF can serve a meaningful purpose in these actively managed fund scenarios by providing reasonably strong upside potential over time without the downside swings even strong markets demonstrate.

Love to hear what you think about ETFs in actively managed funds and the notion of using these low volatility ETFs in some of these situations.

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