For many investors, the benefit of Exchange Traded Funds (ETFs) is that you can benchmark your performance to a particular index without paying the added cost of an active manager.
That logic has come full circle as the Securities and Exchange Commission (SEC) has approved the first actively managed ETFs. On Feb. 27, PowerShares Capital Management announced it had received exemptive relief from the SEC to list four actively managed ETFs. “We are very excited and we plan to introduce additional products throughout the year,” says Bruce Bond, CEO of PowerShares.
George Simon, partner with Foley and Lardner, says that there are many tax advantages to actively managed ETFs as opposed to a mutual fund. “The ETF structure minimizes capital gains and permits the fund manager to minimize taxes,” says Simon, who is working with Bear Stearns on an actively managed fixed income ETF. Three of the four PowerShare funds will be equity based and offer daily transparency.
Simon says all of the initial actively managed ETFs approved by the SEC would offer daily transparency. He notes some managers trading equities may not want to offer this transparency for fear others would replicate their strategies. Bond says this was not a concern for PowerShares, and the first four funds could launch in late March or early April.
