ETFs and similar products are all about price ... or are they?
The latest salvo in the ETF price war was fired
yesterday by State Street Global Advisors (SSgA
]), which revealed lower management fees for 41 of its SPDR
ETFs shortly after Vanguard overtook
SSgA to win the mantle of second-biggest ETF provider in the U.S. Barron's described
SSgA's move as part of a continued "march downhill" for ETF fees. Reuters framed
the news by saying ETF "price competition heats up," and InvestmentNews'
that SSgA "slashes ETF prices" while "facing historic redemptions".
SSgA, Vanguard, and BlackRock's iShares (the biggest ETF provider) all focus on indexed ETFs, and for the vast majority of the more than 800 mutual fund shops out there, indexing is not a game they can hope to achieve scale at. So if the ETF business is all about price cuts and scale, should most fundsters pay any attention?
Yet passive isn't the only way into the exchange-traded world. Pimco launched an ETF version of its giant Total Return Fund, and last May Jim Ross
and his team at SSgA teamed up
with another star bond PM, Jeff Gundlach of DoubleLine.
The most recent variation on active managers' efforts in the exchange-traded space is Eaton Vance's
] "exchange-traded managed funds", powered
by the fund shop's Navigate Fund Solutions
subsidiary under the NextShares
brand. ETMFs offer active managers the ability to sell their wares in a structure that allows for real-time trading without the daily portfolio holdings disclosures that ETFs require. The vision is to license the ETMF structure to other active shops, and last month Navigate president Stephen Clarke won
his first ETMF convert, American Beacon.
Yesterday, one of the old school star-powered mutual fund shops, Mario Gabelli's Gamco
plans to launch its own NextShares ETMF family. Barron's
both picked up on the news.
Active shops like American Beacon and Gamco, especially those driven by star PMs like Gabelli, aren't getting into exchange-trade products to compete on price. If they want in, it's because they think they can have their exchange-traded cake and investors will still eat their active management prices. Fund industry consultant Neil Bathon once said that ETFs are just another share class of mutual fund. If that's true, then there may be space for many other active shops to take a plunge similar to American Beacon's, Eaton Vance's, and Gamco's.
Neil Anderson, Managing Editor
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