Wall Street's stock pickers just got a lifeline

Passive investing is taking over the money-management world.

Exchange-traded funds, which simply track an index, have hoovered up assets at a rate over the past decade.

The funds, which are low cost, tax efficient, and offer liquidity and transparency, pose an existential threat to the actively-managed funds industry.

Actively-managed funds, which are run by stock pickers and bond managers, charge higher fees and have struggled for performance of late.

Well, now those active managers have a chance to fight back.

The SEC just approved new rules that would make the approval process for active ETFs, or exchange-traded funds that are actively managed, much easier, according to people people familiar with the process.

It has taken around two years to get to this point, with exchange groups working with the SEC to finalise the rules.

“For us, we think we have reduced the cost of launching an actively managed ETF, and established certainty around the process,” Chris Concannon, CEO of exchange group Bats Global Markets, told Business Insider. “If you’d like to issue an actively managed ETF, there is now some certainty around what that looks like.”

The streamlined process is big news for fund managers looking to fightback against the march of passive investing.

The combined assets of ETFs in the US stood at $2.2 trillion in May, according to the Investment Company Institute.
That could be just the beginning. They have been tipped to reach the point where they make up 40% to 60% of assets under management in the investment universe over the next ten years, up from around 15% today.

It is also big news for the exchange groups, like Bats, that are seeking to capitalise from a potential uptick in ETF listings. Bats Global Markets has said it wants to become the number one ETF listing venue in the US.

“This is great news for BATS. This is great news for the ETF industry. It is also great news for large investment managers that want to offer their clients an actively managed fund in an ETF wrapper,” Concannon said.

“If you’re a large portfolio manager, having additional product options to distribute to your investor base is always a positive,” he added. “Having a product option that is actually a better tax vehicle is a great option.”

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