Grail Makes Big Bet onActively Managed ETFs
February 8, 2010
The actively managed exchange-traded funds sector is increasingly going mainstream, and Grail Advisors is riding right along with it. Grail is aggressively expanding its product lineup, introducing two fixed-income funds that brings to seven its stable of actively managed exchange-traded funds.
William Thomas, the chief executive officer of the San Francisco money manager, said in an interview that the company plans to introduce still more equity and fixed-income actively managed ETFs and is in talks with mutual fund companies that are interested in converting to the products.
"We expect to significantly ramp up assets now that we have been in [the] market for almost a year," he said. "We should be between $500 million and $800 million [of assets under management] by the end of the year."
Grail has introduced the Grail McDonnell Intermediate Municipal Bond ETF and the Grail McDonnell Core Taxable Bond ETF. Both portfolios are actively managed and subadvised by McDonnell Investment Management LLC, a Chicago fixed-income specialist that manages more than $13 billion of assets.
Thomas said the funds are important for Grail's lineup because they "provide a kind of transparent, liquid and low-cost exposure to the bond market that should enable investors and financial advisers to implement strategies more effectively than they could with traditional fixed-income mutual funds."
Grail started its first actively managed ETFs in May. Thomas conceded that Grail is "very much in its infancy" but said he is confident it can develop assets. "The sector is by far the growth engine for ETFs in the next several years."
Analysts said companies including Manulife's John Hancock, Goldman Sachs and T. Rowe Price have filed applications with the SEC to begin introducing actively managed ETFs.
Three companies dominate the ETF market: BlackRock Inc., State Street Corp. and Vanguard Group. In December, BlackRock completed its $13.5 billion purchase of Barclays Global Investors - a longtime leading ETF provider with its iShares products - and became the largest provider of ETFs. BlackRock's ETF business grew 44.5% last year, to $114.7 billion, and it has been introducing new portfolios this year.
Last year, nine companies began offering ETFs as the number of funds grew by 10%. Three of those nine, including Grail, introduced actively managed ETFs.
Thomas said the ETF universe is overwhelmed by a few large players because ETFs began as index-based products. With more actively managed products being introduced, competition will increase.
Grail plans to introduce sector-based funds, country-specific funds and hedge-like products this year. In addition to McDonnell, Grail uses the money managers American Beacon Funds, New York-based RiverPark Advisors and St. Louis-based Wedgewood Partners to sub-advise its actively managed equity ETFs. MME
ETF Council Set to Launch
The ETF Council, a new trade organization for exchange-traded funds that will focus on both marketing and lobbying, is set to launch this month.
The mastermind behind the new venture is Irving Straus, of public relations firm Straus Corporate Communications, who also founded the Mutual Fund Education Alliance, which promotes direct-sold funds.
"Up until now, [ETFs] have been bringing in assets based primarily on new product introduction, and what I'm telling those that listen in the industry - and they are listening - is that this is going to dry up in due course, or at least become much less of a factor," said the 89-year-old Straus. "You're going to have to get out there and market the value of ETFs versus other investment options."
The Investment Company Institute has a committee dedicated to ETFs, but, as Straus notes, it is not in the ICI's interest to promote the value of ETFs over traditional mutual funds. "The ETF industry doesn't need to pick a fight against funds, but it does need to educate the public [about] what ETFs are all about," Straus said. "The industry has been using the easy ideas. Now is the time when people will decide if they want traditional funds, ETFs or both." MME
iShares' Country ETF Blitz
iShares has registered nine additional country-specific exchange-traded funds with the Securities and Exchange Commission.
The first batch was for: the iShares MSCI Poland Investable Market Index, iShares MSCI China Small-Cap Index, iShares MSCI Indonesia Investable Market Index and iShares MSCI New Zealand Investable Market Index funds.
The second filing covered: the iShares MSCI USA Index, iShares MSCI Brazil Small Cap Index, iShares MSCI Egypt Capped Investable Market Index, iShares MSCI Ireland Capped Investable Market Index, iShares MSCI Russia Capped Index and iShares MSCI Philippines Investable Market Index funds.
The iShares funds will face competition; earlier this year, the Market Vectors Poland ETF launched, and there already are several ETFs covering small-cap stocks in China, including the Claymore/Alpha Share China Small Cap Fund, as well as the Market Vectors Indonesia ETF. Van Eck and Market Vectors also offer small-cap Brazil ETFs.
In addition, PowerShares and State Street have Ireland ETFs in registration; Van Eck and Global X are planning Egypt ETFs, and Global X is readying a Philippines ETF. MME
WisdomTree to Pull The Plug on 10 ETFs
Ten struggling exchange-traded funds that have attracted less than $18 million, or 3% of WisdomTree's $6 billion in assets under management, will be shut down on March 24. Nine of the funds concentrate on equity sectors, and the 10th, on short-term government bonds.
"We propose the closure of 10 ETFs in order to create capacity for future growth initiatives and dedicate our resources to areas of greater client interest," said Jonathan Steinberg, chief executive officer of WisdomTree.
"We have no plans to make any further closures and are fully committed to developing an innovative product line, including the introduction of new funds," Steinberg added.
The 10 WisdomTree funds scheduled to close are: International Technology Sector, International Financial Sector, International Health Care Sector, International Consumer Staples, International Consumer Discretionary, International Industrial Sector, International Communications Sector, Europe Total Dividend, Earnings Top 100 and U.S. Short Term Government Income.