Legg Mason Inc. disclosed plans for its first four exchange-traded funds last Friday in a filing asking regulators if it can build a suite of what it calls “smart beta” products.
The plans amount to the most detailed account yet of how the company plans to make use of the
two executives it hired away in February from the Vanguard Group Inc.'s ETF business, which is the second largest globally.
Baltimore-based Legg, which manages $696 billion, is the 22nd largest mutual fund brand, according to Morningstar Inc. The publicly traded company distributes funds from affiliates it owns, including Brandywine Global, ClearBridge Investments, QS Investors and Western Asset.
ETFs are part of a growth strategy put under place under the tenure of Legg's chief executive of nearly three years, Joseph A. Sullivan.
ROCKY PATH
Legg Mason has had a rocky path since the financial crisis, when it was punished by investor withdrawals and struggled with the departures of top executives. It lost money to investor withdrawals from 2007 to 2011. Legg also faced pressure from an activist investor, Nelson Peltz of Trian Fund Management, and its previous chief executive and chairman, Mark R. Fetting,
left the firm in 2012.
Mr. Sullivan, a former Stifel Financial Corp. executive and board member, joined the company amid the difficulties in 2008, serving as its global head of distribution, a role that includes developing strategy around selling funds to advisers.
The firm's stock (LM) is off 19.6% so far this year. But its open-end mutual funds have taken in $3.8 billion this year.
INDEX AND ACTIVE
Some of the four funds announced Tuesday — Developed Ex-U.S. Diversified Core ETF, Emerging Markets Diversified Core ETF, the U.S. Diversified Core ETF and the Low Volatility High Dividend ETF — will rely on “proprietary technology” created by QS Investors, the Legg affiliate, according to
the filing with the Securities and Exchange Commission.
“Legg Mason continues to work closely with the SEC on its various applications to set up a complete infrastructure to offer both index-based and active ETFs,” the company said in a statement. “We believe there is tremendous opportunity to offer a full complement of better beta and active strategies in an ETF format.”
It declined to comment further.
Over the last year, one in five dollars that has moved into U.S. mutual funds and ETFs has moved into Morningstar's classification for alternative-index-tracking smart beta funds, which it calls strategic beta.
