Active ETFs Thriving at 5, says AdvisorShares’ Hamman By John Sullivan Advisor One
Five years in, products are gaining in the number of new releases and assets under management
Noah Hamman is happy to take up the flag for the active ETF space as a whole.
Ă˘â‚¬Ĺ“In some ways, I feel that from a marketing perspective so much of what we do is addressing the issues the industry faces as a whole,Ă˘â‚¬Âť he says.
When asked about whatĂ˘â‚¬â„˘s happening with active ETFs now that theyĂ˘â‚¬â„˘ve hit their five-year mark, Hamman, founder and CEO of AdvisorShares Investments, is succinct; Ă˘â‚¬Ĺ“TheyĂ˘â‚¬â„˘re growing.Ă˘â‚¬Âť
Ă˘â‚¬Ĺ“TheyĂ˘â‚¬â„˘re experiencing triple-digit growth, just liked index-based products did in their early years,Ă˘â‚¬Âť he elaborates, Ă˘â‚¬Ĺ“But the indexed based-products started off with a well-known index behind them, the S&P 500.Ă˘â‚¬Âť
And while investors typically use indexed-based ETFs for trading purposes, Hamman is seeing advisors Ă˘â‚¬Ĺ“making more dollar cost averaging Ă˘â‚¬â€śtype of investments for their clients for the longer term, rather than these massive trades, so it results in a smaller ticket size.Ă˘â‚¬Âť
So after five years since the first actively managed ETFs came to market, have they finally Ă˘â‚¬Ĺ“arrivedĂ˘â‚¬Âť as a viable product? Hamman doesnĂ˘â‚¬â„˘t hesitate, noting the growth has resulted in more products and more assets under management than index-based ETFs had in their first five years.
Ă˘â‚¬Ĺ“Morningstar recently wrote some commentary about how active ETF assets are really the result of PIMCOĂ˘â‚¬â„˘s recent entry into the space, which is somewhat true,Ă˘â‚¬Âť he concedes. Ă˘â‚¬Ĺ“They also noted that actives are coming off of a $240 billion passive space, which is also true. But people raise these comparisons that are somewhat unfair. Active ETFs are growing in the number of products offered and asset size on their own.Ă˘â‚¬Âť
Elaborating further, he notes that active ETFs have undoubtedly benefited from the education that index ETFs provided but the groups have taken different paths in their initial asset raising. During their early inception, index-based ETFs were targeted by institutions, which are traditionally able to invest more significant amounts of capital.
Active ETFs have mostly been adopted by the retail channel through fee based financial advisors who understand the benefits of active management, but also look for the benefits of the ETF structure which include intraday liquidity, better trading (risk) control (limit orders), transparency, and a more operationally efficient structure that reduces operational expense and can be more tax efficient.
Ă˘â‚¬Ĺ“Many people are saying, Ă˘â‚¬ËśweĂ˘â‚¬â„˘ll wait for three years and see what happens from a performance standpoint,Ă˘â‚¬â„˘ and weĂ˘â‚¬â„˘re combating this from a sales standpoint,Ă˘â‚¬Âť Hamman concludes. Ă˘â‚¬Ĺ“But they no longer have to do this. The transparency active ETFs offer means clients can immediately see if managers are just window dressing or if they are really delivering performance. From a risk management perspective, they have stop loss order and things like that. So itĂ˘â‚¬â„˘s interesting; active ETFs growing.Ă˘â‚¬Âť