Charles Schwab hosted a panel discussion about the ETF industry on Aug 10^th, 2010 involving many of the leaders in the space including Peter Crawford from Charles Schwab, Ben Fulton from Invesco PowerShares, Tom Lydon of ETF Trends, Sue Thompson from iShares, Jim Ross from SSgA and Scott Burns from Morningstar who was moderating the panel.

One of the first topics raised in the discussion was that of actively-managed ETFs when Crawford suggested that ETFs will continue to dominate the passively-managed landscape with actively-managed ETFs only remaining on the margins and active mutual continuing to dominate in the active management arena. Ben Fulton, who heads up the actively-managed ETF pioneer PowerShares which currently has five Active ETFs, responded that there are definitely some areas of the market that remain difficult to index such as alternative investments. That’s where there would continue to be opportunities for active managers.

In the broader scheme of things though, a large majority of asset remain actively-managed held within mutual funds. And in that respect, many of the panellists agreed that the ETF structure represents in many ways a better structure compared to the mutual fund. Tom Lydon chimed in saying that his firms started using ETFs in their portfolios when the mutual fund companies started made it difficult for him to get in and out of funds and in comparison, ETFs offered more flexibility.

With regards to Active ETFs, the consensus seemed to be that they’ll grow but will continue to remain a small part of the ETF universe. This view was supported by Thomas Anderson at Kiplinger’s who wrote in an article recently that while the best and brightest minds in the fund industry could soon be picking securities for ETFs, the assets aren’t rushing into Active ETFs. Anderson proposed three main catalysts that could lead to the Active ETF space taking off. First, if star managers like Bill Miller of Legg Mason started managing these ETFs. Second, if the existing actively-managed ETFs are able to produce strong track records in the next few years and get good ratings from Morningstar. And thirdly, if the SEC gets more comfortable with these products and speeds up the approval process, thus reducing the time to market for new Active ETFs.
 
Disclosure: No positions in above-mentioned names.

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