Active exchange traded funds (ETFs) have continued their 62-month run of consecutive net inflows, with a record US$1.39 trillion worth of assets now invested in the instruments. Yet these vehicles are often systematic strategies with a new name, traders at a Bloomberg event suggested.
During the Bloomberg’s ETFs in Depth forum earlier this month, Slawomir Rzeszotko, head of ETF sales and trading at Jane Street, pointed out that many ETFs labelled as active are in fact systematic strategies.
“From a risk, hedge and market making perspective they’re similar to any other ETF,” he said.
Rzeszotko went on to question the value of semi-transparent ETFs, which have received a tepid reception after recently launching in Europe
Semi-transparent ETFs disclose their holdings on a quarterly rather than daily basis, similarly to mutual funds. Launched in the US in 2019 and in Europe earlier this year, they are designed to give investors access to the benefits of ETFs while protecting managers from their strategies being replicated or front-run.
Rzeszotko opined, “these structures have taken a long time to develop but have had little attention from the industry, in terms of asset inflows and how many products are listed. The proportion of semi-transparent ETFs across active ETFs is 5%. The business case needs to be a lot more attractive to make the effort of development worth it.”
On market liquidity, Tim Miller, senior trader at Fidelity International, affirmed, “actives are more talked about [than passives] at the moment, there’s a higher rate of accumulation. ETF market liquidity is great, but it doesn’t look it. People think the liquidity isn’t there because they’re using single stock metrics to look at baskets.”
“We should talk about tradability rather than liquidity when it comes to ETFs,” argued
, head of ETF capital markets at UBS.
“People misallocate or choose the wrong products because they are taking a cash equity approach.”
“ETFs are historically passive, but there is nothing that prevents them from taking active strategies. It’s easy to pitch active vs passive as an industry gimmick, but from a liquidity perspective you have to look through the wrapper to the underlying,” added Gregoire Blanc, global head of capital markets at Amundi.
