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2007
2007
Hedge Fund Replication
July / August 2007
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The era of actively managed exchange-traded funds (ETFs) is set to begin ... kind of. ETF newcomer Bear Stearns filed the first-ever prospectus for an actively managed ETF this spring. The new, money-market-like fund, the "Bear Stearns Current Yield Fund," will use active strategies in an attempt to deliver higher yields than the average money market account. The fund will trade on the American Stock Exchange (AMEX) under the ticker symbol "YYY," and will charge annual expenses of 28 basis points (0.28%). ETF companies have been promising to deliver actively managed ETFs for years, and YYY looks like it will be the first fund to deliver. Don't expect a rush of funds to follow suit, however: as a short-term bond fund, YYY simply sidesteps many of the traditional challenges that have prevented issuers from creating actively managed ETFs. For instance, active equity fund managers are loathe to tell other people what stocks they are buying; they're afraid traders will "front-run" them and drive up the price of those securities. That's a problem for an ETF as they are currently structured, because fund holdings must be disclosed on a real-time basis. In a short-term bond fund, however, front-running is virtually impossible; there are so many similar securities that buying one and not another makes little difference. So, rather than hiding its portfolio, YYY simply shows it to the world, just as other ETFs do. Experts continue to expect actively managed equity ETFs to enter registration soon ... perhaps this year. Until then, investors will be left "actively" watching the fate of YYY. Will the SEC approve the fund? Will it deliver on performance? Both remain to be seen. |
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