VanEck shies away from actively-managed ETFs

ETF provider VanEck has said it would be unlikely to launch an actively-managed ETF in light of the Australian Securities and Investment Commission (ASIC) review into the products.

In July, ASIC announced it had asked market operators to exclude any new managed funds that use internal market makers while it conducted a review. This review, first announced in August 2018, was exploring how well these type of assets were functioning in the Australian market with relation to features such as tracking error, trading spreads and market making systems.

Active ETFs were those which were actively-managed to outperform a benchmark or achieve an absolute return objective. Using an internal, rather than external, market maker could lead to conflicts of interest as they had the ability to vary the spreads according to trade flows and profit from this.

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VanEck currently had 19 products but they were all passively managed strategies.

Brad Livingstone-Foggo, head of marketing, Asia Pacific, at VanEck, said: “We don’t run any actively-managed ETFs. We would look at it, but if we did, we would hire an external market maker. They are a great innovation but they should all adhere to the same structure.”

Meanwhile, Livingstone-Foggo said the firm was exploring the possibility of a global fixed income ETF, which was an asset class it was missing from its existing range.

“We don’t have any global fixed income in our range and we are looking at things in that area. But we have not done so yet as there is no point doing it just for market sake. We are trying to find a better way of investing in global fixed income than what is already in the market.”

With this in mind, he said VanEck would likely limit its fund range to around 30 funds, unlike other ETF providers which have more than 50 ETFs.

“In five years’ time, it is unlikely we will have any more than 30 ETFs, we don’t want to have a proliferation of products.”

However, he said demand for ETFs had picked up following the Royal Commission and financial advisers were now ‘dipping their toe in’ to the market.

“The lack of knowledge around ETFs is our biggest hurdle. Advisers like to be sceptical about things that are new. The Royal Commission bodes well for ETFs and I think it will be a tipping point, inflows are coming in from advisers and there is a groundswell.

“Advisers are dipping their toe in, perhaps with an ASX ETF, but then they are getting comfortable with them and there is so much choice available.”

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