Fund action - Friday, September 5, 2008
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Traditional Firms Will Follow PIMCO
Paul Justice, ETF strategist at Morningstar, said most of the big name firms will follow PIMCO's lead and enter the space in the next year or two because they already have the research capabilities and ETFs are not substantially different from traditional fund offerings.
PIMCO last week filed to launch actively-managed exchange-traded funds, a move that will help differentiate them from other providers whose ETFs are for the most part passively-managed, said Paul Mazzilli, director of ETF research at Morgan Stanley. Mazilli said brand recognition will help PIMCO compete with other established ETF providers such as State Street Global Advisors, Barclays Global Investors and the Vanguard Group. "Actively-managed ETFs will be attractive to a whole new class of financial advisors ... particularly those with fee-based accounts," said Mazzilli. "I think you will see most of the major names [launching ETF lineups]. It's going to be a major channel for growth and I don't think you want to be last in the game," he added.
Justice said firms will need to differentiate themselves from existing ETF offerings in order to succeed. "You need to come up with an idea that is both relevant and currently unavailable...I don't think we're going to see more ETFs based on the S&P 500," he said.
Ben Phillips, partner at Casey Quirk & Associates, said that while the entry of other big name firms is imminent, new players need to keep costs low when moving into ETFs. "Hedge funds are the biggest clients of ETFs and they want cheap beta and to be able to get in and out on the turn of a dime," he said.
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