With the closure of two Grail ETFs this week, I am reminded of how differently ETF and Mutual Funds are viewed within our own industry. Earlier this year, we heard comments from Greg Johnson of Franklin Templeton Funds. He stated his firm had no plans to “paint by numbers” and instead his firm wants to “produce art by way of active management”. It reminded me of the same conference last year on a panel with Mellody Hobson and Matt Fink, who when asked about “actively managed ETFs”, one of them responded “isn’t that an oxymoron?”
These snipes remind me of the “I am a Mac” and the “I am a PC” commercials. At their core, they are both computers, they are serving the same type of client with basically the same types of goals. Not counting the marketing around them, people basically pick the computer that works best for them and for some they actually use both for very specific reasons.
ETFs are (legally) mutual (not the ETPs, or ETNs). However they are not marketed as “mutual funds” to avoid confusion, but the difference is solely designed to ensure that investors know ETFs have daily transparency and intra-day liquidity and mutual funds are not as transparent and only offer liquidity at the end of the day. Unfortunately for ETFs, the SEC only allowed them to be offered in an index-based format, so as people learned about them, the term ETF became synonymous with passive investment, but the term ETF has nothing to do with investment style, and of course now, thankfully the SEC is allowing more investment styles in this unique structure.
It will be interesting to see if the industry continues to position them as “competitors”. It does seem unusual, as the traditional mutual fund market place has been very comfortable with share class structures where each has their own unique features (no-load, A-Shares, C-Shares). It does seem with so many large firms in line to obtain their approval from the SEC to offer ETFs (Russell, Hancock, JP Morgan, T Rowe, and Eaton Vance), if they follow through with their plans, investors will benefit from a large educational push to ensure investors know the differences and select the right option for their own needs.
— Noah Hamman
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