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Shishir Nigam

State Street Considers Fund Of Funds Approach To Active ETFs

By Shishir Nigam on | More Posts By | Author's Website

On July 11th, Scott Powers, the President and CEO of State Street Global Advisors (SSgA) mentioned to the Financial Times that State Street plans to pursue a fund-of-funds approach to developing new actively-managed ETFs. State Street, which had $1.9 trillion in assets at the end of March, filed for target date funds back in Sep 2009, which will be structured as actively-managed ETFs. Those target date funds will invest in various passive sub-portfolios but the asset allocation across the components will be actively-managed. At the end of June, SSgA had more than $184 billion in assets within its ETF line-up.

In Feb 2010, Jim Ross, a senior managing director at SSgA, mentioned to FT as part of a special report on ETFs that, in his view, “Active ETFs are not getting a lot of traction”, primarily because actively-managed ETFs require investment managers to disclose their complete holdings on daily basis, something that active managers especially in the equity markets have been reluctant to do. That issue is not a concern for the target date funds SSgA has filed for because with a fund-of-funds approach, the ETFs utilized within the strategy are already transparent and all they are giving up is the asset allocation.

Scott Powers was more positive on the space, saying that Active ETFs “will pick up traction over time”. He also echoed Jim Ross’ view, saying that “I don’t think anyone has filed for a basket of active managers, but that’s a logical approach”. He also highlighted the advantages that actively-managed ETFs bring to investors, including tax efficiency, intra-day liquidity and the ability to short or buy a fund with margin.

Given that less than a tenth of State Street’s assets are passively-managed, the company will have a strong advantage in bringing actively-managed products to the market if the Active ETF space really takes off. That is likely what SSgA is watching and waiting for, before making a strong commitment to the sector.
 
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