Grail Fund Struggles to Gain Traction

by on June 9, 2009

Last month, Grail Advisors made headlines in the ETF industry by launching the Grail American Beacon Large Cap Value Fund (GVT). Although PowerShares had pioneered “active” ETFs last year, GVT was the first truly active ETF to hit the market, as this fund afforded its managers a level of discretion equivalent to traditional mutual funds. After nearly a month of trading, the fund has turned in a solid performance, but is yet to attract significant investor funds.

Since its inception on May 12, the “Grail Fund” is up 3.6%, slightly ahead of iShares IWB, an ETF tracking GVT’s benchmark index, the Russell 1000 (IWB is up 3.5% over this period). When factoring in the difference in management fees (0.79% for GVT and 0.15% for IWB), the funds are essentially running neck-and-neck.

The concerns many investors have regarding GVT are not related to its performance, but rather to its volume. In its 20 trading days since launch, the Grail Fund has had zero volume 40% of the time, and is yet to top 5,000 shares on any given day. A month is by no means ample time to fully evaluate the prospects of a fund, but the early evidence for actively-managed ETFs indicates that investors have been less than eager to jump in.

Despite the limited trading volume on GVT, the fund is trading at a slight premium to its NAV, indicating that investors are not demanding an illiquidity premium for holding the ETF. And despite limited trading for the pioneer fund, it appears that the actively-managed ETF industry is continuing to grow, with WisdomTree and Grail Advisors planning additional launches over the coming months.