There might be a lifesaver for the traditional money management industry after all

There might be a lifesaver for the money management industry after all.

Passive funds, which are basically index funds like exchange-traded funds, have been taking assets from active managers for some time, worrying those working in the business.

Index funds are cheaper and more transparent than their actively managed mutual fund cousins.

As such, passive funds are expected to continue their rise, even if active money managers improve their performance.

Still, some hopeful developments are emerging for the active managers.

In 2014, Eaton Vance launched a hybrid fund, an exchange-traded managed fund (ETMF), called NextShares, though it hasn’t taken off on a wide scale. Another structure, the nontransparent ETF (NTETF), has also been proposed by Precidian, which is partially owned by fund manager Legg Mason. The NTETF functions like an existing ETF, and investors will be able to buy and sell them through their existing accounts at traditional brokerage firms and financial supermarkets.

And earlier this summer, the Securities and Exchange Commission made it easier for actively-managed exchange-traded funds to get approved.

These kinds of funds offer hope for active managers, according to Deutsche Bank. The bank put out a big 240-page note on active and passive management last week, and said:

“To the extent active non-transparent ETFs are approved or the NextShares Exchange-Traded Managed Fund (ETMF) product from Eaton Vance becomes widely embraced, it could create a renaissance for active managers if active alpha does not worsen So all of this seems well and good for those trying to stem the tide for active managers.”

There is still a long way to go for these kinds of funds. It turns out, for example, that a lot of the financial advisors who would add money to these hybrid funds don’t know all that much about them.

That’s an even better sign, because it means active managers might have more assets to grab than it seemed. NextShares got off to a slow start, mostly due to distribution problems, as Institutional Investor reported.

This is what Deustsche found in its 200-person survey (emphasis added):

“Over three quarters of respondents are only somewhat aware of exchange-traded managed funds (ETMFs) and NextShares (Figure 643), with the greatest awareness among wirehouses. We believe that this low awareness points to the potential for market growth, as awareness increases.”

In addition, financial advisors sound like they’d actually like to use NextShares or similar funds.

“Over 60% of respondents replying that they are likely to sell NextShares over the next two years (25% are extremely likely) and 60% likely (including 27% very likely) to sell [exchange-traded mutual funds],” the report said.

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