Time To Buy an Active ETF? Stock Pickers Doing Well in 2013 By Brendan Conway
We often note the paucity of actively managed exchange-traded funds Ă˘â‚¬â€ť often enough, apparently, that BlackRockĂ˘â‚¬â„˘s (BLK) Larry Fink cited a line from a recent column on the companyĂ˘â‚¬â„˘s earnings call pooh-poohing their progress last year: Ă˘â‚¬Ĺ“Actively managed ETFs may be the biggest story that never quite happened in 2012.Ă˘â‚¬Âť
And yet the small number of actively managed ETF are doing remarkably well. At least, several are starting off 2013 that way.
Take the AdvisorShares TrimTabs Float Shrink ETF (TTFS), whose market price is up seven percent on the year at this writing. The Columbia Concentrated Large Cap Value Strategy Fund (GVT) is up by more than eight percent. Huntington EcoLogical Strategy Ă‚Â ETF (HECO) is up by nearly eight percent. There are others turning in a better few weeks than, for instance, the SPDR S&P 500 ETF (SPY), up by nearly six percent.
Worth noting: No active stock ETF has particularly strong trading volume or large assets under management. That may not necessarily be a problem. The underlying components are usually pretty liquid. So buying in small amounts with a limit order, or talking to market makers about a bigger order, shouldnĂ˘â‚¬â„˘t be a problem.
Who knows whether it will continue. But the big picture suggests itĂ˘â‚¬â„˘s more likely today than last year or the year before. Ned Davis Research ETF strategist Neil Leeson argues in a note this week that the decline in asset correlation Ă˘â‚¬â€ť thatĂ˘â‚¬â„˘s the tendency of stocks and other assets to swing closely together in price Ă˘â‚¬â€ť should be good news for stock pickers and for recipes other than Ă˘â‚¬Ĺ“buy everythingĂ˘â‚¬Âť indexing. ItĂ˘â‚¬â„˘s a theme we cover frequently as it pertains to mutual funds.
As Leeson puts it:
I know it is early, but as our Sector Strategists pointed out late last year, the Ă˘â‚¬Ĺ“decline in correlations among stocks suggests company-fundamental factors are likely to have an increased influence on selection,Ă˘â‚¬Âť and the out-performance of the active funds thus far suggests that 2013 has started as a Ă˘â‚¬Ĺ“stock-pickerĂ˘â‚¬â„˘sĂ˘â‚¬Âť market.
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