T. Rowe Price Plans Actively-Managed ETFs

by on December 11, 2009 | ETFs Mentioned:

T. Rowe Price has filed with the Securities and Exchange Commission for approval to launch a line of actively-managed ETFs. In its filing for exemptive relief with the SEC, T. Rowe indicated that its initial fund would invest primarily in domestic fixed income securities, but that it could eventually launch domestic and international equity ETFs, as well global fixed income funds.

T. Rowe Price is the latest in a now long line of mutual fund giants to jump over to the ETF industry. Vanguard was one of the earliest entrants into the space, and has become one of the most successful ETF issuers. The firm founded by Jack Bogle saw cash inflows of almost $5.5 billion in November, the most of any ETF issuer for the month. PIMCO and Charles Schwab have also made successful transitions into the ETF space: PIMCO now has nine fixed income ETFs (including two actively-managed funds) that have collected nearly $500 million in aggregate assets, while Schwab’s four low-cost funds have racked up more than $150 million in just over a month of trading. And just this week, Old Mutual made its entrance to the ETF industry, launching the first “zero cost, zero fee” ETF.

T. Rowe’s filing indicated that the firm plans to “utilize active investment management strategies.” It goes on to state that the objective of the initial ETF will be “to achieve positive total returns with an emphasis on income…by applying a proprietary sector and security selection methodology.” The methodologies used in these active funds would include over/underweighting sectors and subsectors and adjusting average maturities and durations in fixed income funds.

Actively Managed ETFs: Too Early To Tell

Active ETFs
Ticker Assets
PSR $9 million
PQY $4 million
PQZ $5 million
PMA $3 million
PLK $8 million
*As of November 2009

Many in the ETF industry have been predicting the rise of actively-managed ETFs as the “next big thing.” But so far, these products have been slow to gain traction among investors. Despite some impressive results (PSR has outperformed its benchmark by a wide margin), the five actively-managed ETFs launched by PowerShares in 2008 have only about $30 million in assets. Actively-managed ETFs from Grail (GVT) and Dent (DENT) have also been slow to bring in cash.

Many in the industry see the a tough battle ahead of actively-managed ETFs, due to a number of factors. “The problem…is that actively managed mutual funds are sold on either commission-based sales loads or on track record,” writes Matt Hougan. “ETFs have neither.”

But others think that these “structural impediments” are relatively easy to overcome. “Big-Active is already…relying on track record, brand and fingers-crossed wholesaling to the financial adviser community, without the quid pro quo of 1980s-era commissions and trips to Hawaii,” writes Hougan’s colleague Dave Nadig. “There’s really nothing in the way of them extending the model into the ETF world.”

The jury is out on still actively-managed ETFs, and T.Rowe seems to be gearing up to make a big push into the space. Stay tuned to see how this one turns out and sign up for our free ETF newsletter to stay up to date on all developments in the ETF industry).

Disclosure: No positions at time of writing.