An article in The New York Times points out that actively-managed exchange-traded funds (ETFs) have not become hugely popular in over five years since they were first introduced.

Alpholio™ identified only 18 active ETFs, each with current assets of at least $100M (generally considered a minimum for a long-term viability of a fund), listed here in the descending order of assets:

Name Ticker Assets ($M) Expense Ratio (%)
PIMCO Enhanced Short Maturity MINT 4,192 0.35
PIMCO Total Return BOND 3,927 0.55
WisdomTree Emerging Markets Local Debt ELD 1,412 0.55
SPDR Blackstone/GSO Senior Loan SRLN 525 0.90
WisdomTree Asia Local Debt ALD 509 0.55
Guggenheim Enhanced Short Duration Bond GSY 476 0.28
First Trust North American Energy Infrastructure EMLP 422 0.95
AdvisorShares Peritus High Yield HYLD 388 1.35
WisdomTree Chinese Yuan CYB 216 0.45
WisdomTree Emerging Currency CEW 196 0.55
PIMCO Intermediate Municipal Bond MUNI 194 0.35
AdvisorShares Ranger Equity Bear HDGE 185 1.93
WisdomTree Managed Futures WDTI 145 0.96
SPDR SSgA Multi-Asset Real Return RLY 138 0.70
Cambria Shareholder Yield SYLD 125 0.59
WisdomTree Emerging Markets Corporate Bond EMCB 112 0.60
PIMCO Global Advantage Inflation-Linked Bond ILB 111 0.60
SPDR SSgA Income Allocation INKM 105 0.70
Total 13,378
Average 0.72
Asset-Weighted 0.55

For this group of ETFs, the asset-weighted expense ratio is smaller than the average expense ratio. This is largely caused by relatively low expense ratios of the three largest ETFs that invest in bonds and hold approx. 71% of the group’s assets.

In contrast, currently there are about 636 passive ETFs, each with assets of at least $100M totaling about $1.53T. The asset-weighted expense ratio of these ETFs is 0.29% and the average expense ratio is 0.49%.

Active ETFs still have less than half of expense ratios of actively-managed mutual funds. This is because ETF shares are mostly traded among investors, and not between investors and the issuer, which decreases operating costs.

A major obstacle for managers of active ETFs is the requirement to publish fund holdings daily, which can enable other parties to front-run or shadow (emulate) their portfolios. This is especially a problem for those ETFs that are clones of actively-managed equity mutual funds.

Several issuers are currently seeking regulatory approval for a quarterly reporting of portfolio holdings by active ETFs, same as for traditional mutual funds. The industry has also devised patented workarounds, incl. the publication of indicative values every 15 seconds together with the stated benchmark for the ETF, and using blind trusts for authorized participants to preserve tax efficiency.

If the SEC approves such “non-transparent” active ETFs, the number and assets of these products will likely rise. Alpholio™ can effectively analyze active ETFs regardless of the frequency of holding disclosure, applying the same return-based methodology as for traditional mutual funds. In addition, Alpholio™ can also include active ETFs in reference portfolios for mutual funds if that improves the accuracy of fund analyses.

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