Wednesday, February 07, 2007

FT - "Investment vehicle could be a ‘better mousetrap’ for managers"

It's interesting, but I am still somewhat skeptical. 'Actively managed ETFs can perform better than open-end mutual funds because the managers are freed from the need to make purchases of stocks to deploy cash inflows'? But someone, the arbitrageur, has to buy the stocks, the 'creation units', exchanged for the the ETF shares, right? That's how ETFs work. It's formulaicly-driven, rather than analyst-driven, as to which stocks are purchased, but stocks get bought, by someone, when people want to buy the actively-managed ETF, at least while the ETF is ramping up in trading volume, and as buyers outnumber sellers. I just don't see that the conclusion, enhanced performance, necessarily follows from the reasoning in the article.

Anyway, watch for a lot of hype when the actively-managed ETFs begin to show up en masse. If what has happened with ETFs already is any indicator, there will be some really strange and useless critters evolving in this part of the financial arena. Hype will trump real utility for building portfolios. I can see it now, the 'Best-performing Small-cap Flashlight Makers' ETF; and its derivative concept for those feeling a little down on that group, the Double-inverse Worst-performing Small-cap Flashlight Makers ETF, etc. Boy, won't that be great!



FT.com / Wealth - Investment vehicle could be a ‘better mousetrap’ for managers

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