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 Tom Lydon is Editor of etftrends.com, a web site and newsletter focused exclusively on ETF investing. He is also President of Global Trends Investments, and a leading expert on the ETF industry. He is a regular contributor to The Wall Street Journal, Fox Business, Business Week, CBNC, and Barron’s. His latest book, iMoney: Profitable ETF Strategies for Every Investor, is available through Amazon via the link above.
We spoke with Tom about the important trends in the ETF industry.
Active ETFs
“The most visible trend, although not necessarily the most important, has been the introduction of active ETFs,” said Lydon. Since the launch of the first one in March, Bear Stearns Current Yield (YYY), investors gave the funds a tepid response. “This is likely largely because of their lack of a track record – as actively managed products, there is no back-tested data, and investors wanted to see how they’d perform before they dove in,” he said. From March to May of this year, YYY picked up $50 million in assets.
The second entrant into the active ETF game was PowerShares, who introduced three active equity ETFs and one active fixed income ETF in April. “The three-month anniversary numbers for these funds are in, and they’re good: they’ve actually outperformed their indexed counterparts,” said Lydon. “Three months isn’t long enough to establish a 200-day moving average, of course, but with promising initial numbers like that, investors might find themselves more willing to give active ETFs a try,” he added.
Active ETFs have attracted only about $65 million of assets across all products, according to a recently released study by State Street Advisors. Tom Anderson, the author of the study, said that ETFs have failed to achieve both of two key benchmarks required for success – attracting assets and establishing a high trading volume.
“New launches could very well follow if investors begin moving assets into these funds, and providers feel more assured that the markets will welcome them,” says Lydon.
Lydon added that State Street’s numbers do not include WisdomTree’s line of six currency funds, which now have $120 million. They’ve been classified as active by the SEC, since they seek to earn current income reflective of money market rates available to U.S. investors in the country/region of the fund.
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