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Posted by on Sep 7, 2012 in Active Management

Active ETFs and the Deathwatch!

Active ETFs and the Deathwatch!

We read Herb Greenberg’s article about Ron Rowland’s ETF Deathwatch blog post.  The Deathwatch blog post is similar to the TMZ of the ETF space.  Shocking headline, but Ron’s ultimate goal based on all the pop-ups on his website is to sell you his newsletter.  It’s unclear how valuable those newsletters are, as there is not much transparency in the newsletter space, nor any historic accountability or independent reviews similar to what a Morningstar provides for the ETF and Mutual Fund space.

The big news for the blog post was that half of the active ETFs are now on this ETF Deathwatch list.  Needless to say, as a sponsor of active ETFs, the first thought that came to mind, was how could this be?  Active ETFs are not that old.  Looking at the criteria for inclusion in this list, appears to be based on 3 things, average trading volume, at least $25M in assets under management and at least 6 months old. It’s that last qualification that draws the most concern.  I don’t believe you can judge actively managed ETFs the same way you would index ETFs.  Most investment advisors have a 3 year time frame (some more, some less), before they will consider investing into a strategy.  While we could articulate many reasons why an advisor should be more comfortable making an allocation earlier, the reality is that for actively managed ETFs, (for now) the investment decision is made similar to actively managed mutual funds.

So while the shocking headline is good for selling newsletters, Ron is also an RIA, a fiduciary.  He should have the proper training to know that the sustainability of an active strategy is not determined in 6 months.  Most actively managed mutual funds are seeded by the sponsor, so they can start a public track record, and establish enough performance data, in different market cycles.  Investors then can properly analyse the investment strategy and determine if they will invest with the Manager.

Here is a link to the follow up appearance on CNBC.

CNBC Appearance on Active ETFs