The Long, Slow Decline in Fund Manager Fees May Be Ending

Active exchange-traded funds have seen record inflows in recent years, taking assets under management to $630 billion. That’s a lot of money but small in comparison to the $10 trillion in ETF assets overall or the $24 trillion in public mutual funds registered in the US. Still, one corner of the active ETF space represents the best shot traditional fund managers have of preserving their role in the investing landscape.

Active ETFs are mainly new distribution mechanisms for existing strategies. Almost all are linked to active public mutual funds — conversions (the public mutual fund is changed to an ETF), clones (an ETF with the same strategy and portfolio as the public mutual fund) or new share classes for an existing fund. These have little effect on the asset managers, only on the plumbing that connects them to investors. A few active ETFs are strategies launched specifically for this space, but they are not very different from active public mutual fund strategies.

The place to keep your eyes is on a tiny sliver — less than $10 billion AUM — of the active ETF market: the semi-transparent and nontransparent ETFs exempt from daily portfolio disclosures. Opinions on these funds are sharply divided. has declared them to be the “holy grail” of the asset management industry, though tepid early interest has led others to dismiss them as out of step with the transparency investors demand today.

It seems too early to write off these secretive ETFs with most large fund managers having either issued such products or announced plans to do so, including JPMorgan & Co., Blackrock Inc., Legg Mason Inc., Gabelli Funds, Columbia Threadneedle Investments, Nuveen and American Century Investments. If these take off, they could cause fundamental changes to the asset management industry, giving managers a more prominent role and potentially arresting the Quicktakelong trend toward lower fees.