Vanguard, the king of passive investing, hops on board the active ETF train

Joins Fidelity, Davis and others in SEC filings for actively managed ETFs

Aug 17, 2016 @ 2:12 pm

By John Waggoner

Vanguard, where the world goes to catch a ride on index funds, is building a new station for actively managed exchange-traded funds.

In a recent filing the with Securities and Exchange Commission, the Valley Forge, Pa., fund giant asked for exemptive relief for offering actively managed ETFs. “This application gives us the flexibility to offer actively managed strategies,” said Vanguard spokeswoman Katie Hirt. “We're making sure we're set up in the future to provide that flexibility.”

Vanguard joins a growing number of fund companies filing for actively managed ETFs. Fidelity recently filed for exemptive relief for a suite of non-transparent actively managed ETFS, and Davis Selected Advisers has done the same.

"This is a real interesting development as Vanguard has historically been an indexer, which makes them a perfect fit for traditional indexed ETFs,” said Matthew Tuttle, chief investment officer of Tuttle Tactical Management. "The fact that they want to enter the active space seems to indicate that they believe that the active ETF industry is such an oncoming train that they are better off going along for the ride than they are trying to stand in front of it.”

Companies may have been waiting for the SEC to move first, and are simply giving up. “I've been saying for some time that the large active fund managers would get tired of waiting for a simple non-transparent active ETF structure to be approved, and it looks like Vanguard is one of the first ones to jump,” said Dave Nadig, vice president and director ETF research at FactSet Research Systems. “This is pretty much a plain vanilla active ETF filing.”

Why the rush to active ETFs? “Actively managed products are designed to protect investors from steep market declines,” said Adam Sarhan, chief executive of 50Park.com. “Hence a recent surge in actively managed products in recent years. Eventually, this bull market will end, and when it does, investors will want to be able to get out. That is the big lesson that people have learned after the last two violent bear markets. Actively managed products check that box."

Ms. Hirt noted that Vanguard has no lineup of actively managed ETFs in the wings. “It's a long time between exemptive relief to launching a new product,” she said. “This is just to get us started.”

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