- Paramount Pictures
Passive investing is shaking up the money-management world.
Exchange-traded funds, which simply track an index, have hoovered up assets over the past decade.
The funds, which are low cost, tax efficient, and offer liquidity and transparency, pose an existential threat to the actively-managed funds industry.
Actively managed funds, which are run by stock pickers and bond managers, charge higher fees and have struggled for performance of late.
Now those active managers have a chance to fight back.
The Securities and Exchange Commission just approved new rules that would make the approval process for active ETFs, or exchange-traded funds that are actively managed, much easier, according to people familiar with the process. The new rules will cut the approval timeline down by months and clarify the process and cost.
It has taken around two years to get to this point, with exchange groups working with the SEC to finalize the rules.
“For us, we think we have reduced the cost of launching an actively managed ETF and established certainty around the process,” Chris Concannon, CEO of exchange group Bats Global Markets, told Business Insider. “If you’d like to issue an actively managed ETF, there is now some certainty around what that looks like.”
The streamlined process is big news for fund managers looking to fight back against the march of passive investing.
- REUTERS/Mike Segar
The combined assets of ETFs in the US stood at $2.2 trillion in May according to the Investment Company Institute. That could be just the beginning. Analysts say they could make up 40 to 60% of assets under management in the investment universe over the next 10 years, up from around 15% today.
It’s also big news for the exchange groups, like Bats, that are seeking to capitalize from a potential uptick in ETF listings. Bats Global Markets has said it wants to become the number-one ETF listing venue in the US.
“This is great news for Bats. This is great news for the ETF industry. It is also great news for large investment managers that want to offer their clients an actively managed fund in an ETF wrapper,” Concannon said.
“If you’re a large portfolio manager, having additional product options to distribute to your investor base is always a positive,” he added. “Having a product option that is actually a better tax vehicle is a great option.”