Vanguard to launch actively managed ETFs

Mar 10, 2014 @ 11:44 am (Updated 3:22 pm) EST

Vanguard Group Inc., the third-largest U.S. provider of exchange-traded funds, has asked regulators for permission to open actively managed ETFs.

Approval would allow Vanguard to offer ETF share classes for its existing actively managed mutual funds, including the $82 billion Wellington Fund, according to an application filed with the U.S. Securities and Exchange Commission. The firm has no immediate plans to offer active ETFs should it receive approval, according to Joel Dickson, a senior ETF strategist at Vanguard.

“It's all about having the permission so at some point, if a fund board wishes to do this, the first step has been taken,” he said. The firm would be required to file additional applications for specific funds to sell ETF shares, Mr. Dickson said.

Actively managed ETFs combine the advantages of a stock or bond-picking manager with the tradability of an ETF, which can be bought or sold on an exchange throughout the day. Active managers have largely shied away from offering ETF versions of their products because ETFs are required to disclose all their holdings every day, revealing their investing strategies.

On the bond side, where transparency is less of a concern because it's harder to replicate a fund's holdings, some active ETFs have proved successful. The Pimco Enhanced Short Maturity ETF, offered by Pacific Investment Management Co., holds $3.96 billion.

Vanguard's proposed active ETFs would be fully transparent. Approval would make it possible for its stock, bond and balanced mutual funds to offer ETF share classes. The firm's existing ETFs, which hold $346 billion, are share classes of Vanguard index mutual funds, a structure the firm patented.

(Bloomberg News)